Salesforce Q1 earnings: ‘one of the best risk-rewards in software’

Shares of Salesforce Inc (NYSE: CRM) is trading down in extended hours even though the cloud company reported market-beating results for its first financial quarter.

Should you buy Salesforce stock?

The price action is particularly intriguing since executives raised the guidance as well. They now forecast a record $7.41 a share to $7.43 a share of earnings this year.

To that end, Wedbush Securities’ senior analyst Dan Ives sees the pullback in after-hours as an opportunity to invest in Salesforce.

I think it’s just another quarter in the right direction in terms of margins, in terms of growth. In my opinion, it’s [Salesforce] is one of the best risk-rewards out there in software.

For the current quarter, Salesforce is now calling for about $1.90 a share of adjusted earnings on up to $8.52 billion in revenue. In comparison, analysts were at $1.70 per share and $8.5 billion, respectively.

Salesforce is an AI player

Earlier this year, Salesforce lowered its headcount by 10% as it shifted focus from revenue growth to profit margins (read more).

Other than cost cuts, Ives expects artificial intelligence as well to be a meaningful tailwind for the Salesforce stock. On CNBC’s “Closing Bell”, he said:

Benioff is one of the best in execution. You have an installed base that’s unparalleled. And now, with Slack, Tableau, and AI, that ultimately could be incrementally a $4.0 billion opportunity for Salesforce.

The Wedbush analyst is confident that the cloud stock could easily hit $260 – a price objective that suggests a near 25% upside from here.  

Salesforce Q1 earnings snapshot

• Earned $199 million versus the year-ago $28 million
• Per-share earnings also climbed from 3 cents to 20 cents
• Adjusted EPS printed at $1.69 as per the earnings press release
• Sales went up 11% on a year-over-year basis to $8.25 billion
• Consensus was $1.61 a share on $8.18 billion in revenue
• Operating margin (adj) improved 10 percentage points to 27.6%

The California-based company ended the quarter with $24.1 billion worth of remaining performance obligations – up 12% versus last year. Salesforce stock is now up nearly 60% for the year.