Salesforce (NYSE: CRM) Q4 Analysis: Data Cloud and Einstein Copilot Driving Growth

Salesforce (CRM) wrapped up its fourth quarter with an impressive performance, surpassing expectations in both revenue and EPS. Despite providing a somewhat conservative revenue outlook for FY25, the company’s overall guidance, especially in terms of margins and profitability, was robust. Additionally, CRM initiated its inaugural quarterly dividend, demonstrating its commitment to rewarding shareholders.

Fourth Quarter Highlights:

• Revenues for Q4 reached $9.29 billion, marking a 10.77% increase year-over-year (y/y) and surpassing analyst estimates by $66.57 million. Non-GAAP diluted EPS came in at $2.29, exceeding estimates by $0.02.
• Full-year revenues amounted to $34.9 billion, up 11% y/y, with operating margins at 30.5%, an 800 basis points improvement y/y.
• The company’s remaining performance obligations (RPOs) stood at an impressive $56.9 billion, up 17% y/y, indicating strong demand for Salesforce’s services.

Future Growth Catalysts:

1. Data Cloud: The Data Cloud, which offers real-time data personalization, is poised to drive CRM’s future growth. Leveraging CRM’s metadata, Data Cloud enables personalized insights accessible across Salesforce’s Customer360 platform. Notably, 25% of Q4 deals valued over $1 million included Data Cloud, hinting at its growing significance. With nearly 90% y/y growth, Data Cloud is positioned to become a significant revenue contributor in the long term.
2. Einstein Copilot: Salesforce’s AI tool, Einstein Copilot, is gaining traction, with a beta version already receiving considerable demand. Built on Data Cloud’s foundation, Einstein Copilot offers enhanced data governance and privacy, addressing crucial enterprise concerns. The upcoming TrailblazerDX Developer Conference is expected to provide further insights into Einstein Copilot’s potential and CRM’s AI roadmap.

Investment Thesis: CRM’s forward P/E of 31.5x and a forward PEG ratio of 1.95 reflect its growth potential, particularly with the introduction of Einstein Copilot. Assuming mid-point FY25 EPS guidance of $9.72, a projected FY26 EPS of $11.28, and a forward P/E of 31.5x, a price target of $355 suggests a 15% upside from current levels.

Risks: While CRM’s AI initiatives hold promise, the pace of integrating these tools into the Customer360 platform remains a key risk. Additionally, the lighter revenue guidance for FY25 raises questions about customer adoption and potential growth pauses.

Concluding Remarks: CRM’s Q4 performance underscores its resilience and long-term potential. Data Cloud and Einstein Copilot are pivotal in driving future growth, positioning CRM as a leader in the enterprise software space. Next week’s TrailblazerDX Developer Conference will provide further clarity on CRM’s AI strategy and growth trajectory. Despite short-term uncertainties, CRM remains well-positioned for sustained success in the evolving tech landscape.