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4 Key Metrics Capture Salesforce's Strong Second-Quarter Performance

Salesforce (NYSE: CRM) is firing on all cylinders. In its fiscal second quarter, the software-as-a-service company beat analysts' consensus forecasts for every important metric. In addition, the company saw broad-based growth across all of its service offerings and in each of its geographic markets.

"An enormous wave of digital transformation is sweeping across every industry, and major brands, like FedEx, AXA and Unicredit, turned to Salesforce in the quarter to propel their growth," said Salesforce co-CEO Keith Block in the company's fiscal second-quarter earnings call. "The trust our customers have in us to drive their digital transformations is reflected in our strong quarterly results across our clouds and regions."

Salesforce chairman and Co-CEO Marc Benioff. Image source: Salesforce.com.https://brandfolder.com/salesforce

1. Revenue increased 22%

Salesforce's second quarter of fiscal 2020 saw revenue rise 22% year over year to $4 billion. Revenue grew 23% in constant currency.

The quarter's revenue was well ahead of management's guidance for revenue in the period to be between $3.94 billion and $3.95 billion. In addition, the top-line figure easily beat analysts' average forecast for revenue of $3.95 billion.

2. Service cloud revenue climbed 22%

One area of Salesforce's business that has been an important catalyst for the company recently is its service cloud offering. As Salesforce's second-largest segment measured by revenue, it has been quickly closing the gap on the company's sales cloud. Service cloud revenue during the quarter increased 22% year over year to $1.09 billion -- not far from sales cloud's revenue of $1.13 billion.

Explaining this cloud offering's momentum, Salesforce co-CEO Marc Benioff explained in the company's fiscal second-quarter earnings call why service is so critical to companies' digital transformations:

[S]ervice is just very powerful. If you look at companies in a variety of industries, they like to differentiate themselves by service ... So as we talk to these executives about the future of growth, you can't have growth without a great customer experience, and that starts with service.

Revenue in Salesforce's other cloud offerings saw the following year-over-year growth rates:

  • Sales: 13%
  • Salesforce platform and other: 28%
  • Marketing and commerce: 36%

3. Salesforce's current remaining performance obligation increased 23%

Salesforce's current remaining performance obligation, which is a measure of backlog over the next 12 months, increased 23% year over year to $12.1 billion. In constant currency, this expected revenue is 25% higher than the year-ago quarter.

This is a notable acceleration from 24% growth in the key metric in fiscal Q1.

4. Expecting fiscal 2020 revenue up to $16.9 billion

Given the strong results, it was no surprise to see the tech company lift its full-year outlook. But the boost management gave to its forecast for the period was significant.

Salesforce expects fiscal 2020 revenue to be between $16.75 billion and $16.90 billion. Previously, management had guided for fiscal 2020 revenue of $16.10 billion to $16.25 billion. Part of this higher guidance is from the company's organic performance, but it's also due to Salesforce's recent acquisitions of Tableau, Salesforce.org, and ClickSoftware.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx and Salesforce.com. The Motley Fool has the following options: long January 2021 $100 calls on Salesforce.com. The Motley Fool has a disclosure policy.


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