Salesforce (CRM -21%) is under pressure today following its Q1 (Apr) results last night. CRM beat on EPS, but revenue was light. This small top line miss was CRM's first in five years. Another concern was CRM guiding Q2 (Jul) below analyst expectations for both EPS and revenue. The silver lining was CRM raising FY25 EPS guidance while reaffirming FY25 revenue.
- Revenue was impacted by pressures on professional services, license revenue volatility, and a measured buying environment. Americas revenue grew +11%, EMEA grew +10% (+9% in constant currency), and APAC grew +14% (+21% CC). CRM saw strong new business growth in Japan, India, and Canada, while parts of LatAm and EMEA were constrained. Public sector and financial services performed well, while high tech and retail and consumer goods were more constrained.
- Investors pay close attention to Current Remaining Performance Obligation (CRPO), which represents all future revenue under contract. Q1 CRPO came in at $26.4 billion, +10% yr/yr and +10% CC, below prior guidance of +11% yr/yr and +12% CC and Q4's +12% and +13% CC. This CRPO metric is spooking investors and weighing on shares today. Q2 CRPO guidance of +9% and +10% CC also reflects ongoing headwinds from professional services.
- CRM continues to see measured buying behavior, similar to the past two years except for Q4, where it saw stronger bookings. Q1 saw elongated deal cycles, deal compression, and high levels of budget scrutiny. Intentional changes in its go-to-market organization also played a role in the softer bookings.
- On the positive side, CRM is seeing strong momentum in parts of its business, particularly Data Cloud. Industries performed well, with half of its top 10 deals including one of its industry clouds. CRM is seeing great momentum with Slack, included in nearly half of its top 50 deals in Q1. It also launched Slack AI in February. Multi-cloud deals were a highlight in Q1, with 6 of its top 10 deals including 6+ clouds.
- Looking ahead to the balance of FY25, CRM expects its professional services business to be a revenue headwind with deal compression and customers delaying or slowing projects. However, CRM also sees strong demand for Data Cloud and multi-cloud adoption, benefits from recent pricing and packaging changes, and strong industry adoption.
Overall, investors were spooked by several factors: the Q1 revenue miss, the Q1 CRPO shortfall, and the Q2 guidance (EPS, revenue, CRPO). CRM's talk of measured buying behavior continues, despite Q4's strong bookings number, indicating ongoing challenges.
