Salesforce Raises FY21 Revenue Forecast to $21B Following 20% Revenue Growth in Q3 FY21

Following a record performance during the third quarter of its fiscal year 2021 (Q3 FY21), which ended on October 31, 2020, Salesforce raised its overall revenue forecast for the fiscal year 2021 (FY21) and fiscal year 2020 (FY22) considerably.

According to the research data analyzed and gathered by the Finnish website Sijoitusrahastot, its revenue totaled $5.42 billion during the quarter, up by 20% year-over-year (YoY). Comparatively, its Q3 revenue is 29% higher than what it had in Q2. Moreover, the figure exceeded analysts’ expectations which stood at $5.25 billion according to Refinitiv. Earnings per share (EPS) were $1.15 cents, against an expected 74 cents.

During the period, the company’s subscription and support revenue amounted to $5.09 billion, marking a 20% YoY increase. Professional services and other revenue totaled $0.33 billion, up by 22% YoY.

As a result of this performance, Salesforce raised its Q4 FY21 guidance to $5.665 billion to $5.675 billion, an increase of 17% YoY. It also increased the full-year guidance for FY21 to $21.10 billion to $21.11 billion. It would mark an increase of 23% YoY and is significantly higher than the analysts’ estimate of $20.8 billion.

For the first quarter of FY22, it raised the revenue guidance to $5.680 billion to $5.715 billion, up by 17% YoY.  Moreover, for the full year FY22, it raised the outlook to $25.45 billion to $25.55 billion. It would be an increase of 21% YoY and would include around $600 million from Slack Technologies. Comparatively, Refinitiv analysts estimated $24.50 billion in revenue for the period.

Salesforce Acquires Slack for $27.7 Billion, its Highest Value Deal Ever

Salesforce was one of three companies to join the Dow Jones Industrial Average during the quarter, alongside Honewell and Amgen. The three replaced Pfizer, Exxon and Raytheon on the 30-company index.

During its earnings call, Salesforce announced its intention to acquire Slack for an incredible $27.7 billion. According to CEO Marc Benioff, it was something they had thought about for years. Though they tried building it with Chatter in 2010, it failed to catch on.

The acquisition is set to be among the top mega deals in 2020 and will be Salesforce’s biggest deal in history.

In the tech space, 2020 has so far seen only two deals bigger than the Salesforce Slack acquisition. The highest value deal in the industry so far was NVIDIA’s acquisition of ARM for $40 billion according to Computer World. Announced in September 2020, it was a combined stock-and-cash deal. Second to it was the AMD acquisition of Xilinx for $35 billion in an all-stock deal towards the end of October.

Salesforce Loses $18 Billion in Market Cap Following Acquisition Rumors

Prior to the Slack acquisition, Salesforce’s top deal was the Tableau acquisition in 2019, valued at $15.7 billion. Before that, the highest value deal was the 2018 MuleSoft acquisition at $6.5 billion.

Other noteworthy acquisitions include Demandware (2016) at $2.8 billion, ExactTarget (2013) at $2.5 billion, ClickSoftware (2019) at $1.35 billion and Vlocity (2020) at $1.33 billion.

Salesforce has had a measure of success with previous blockbuster purchases. For instance, following the Demandware acquisition, the CRM company’s Commerce and Marketing segments came to life.

On the latest earnings call, the two segments processed upwards of 31 million orders, an increase of 62% YoY. Similarly, the Platform segment, which was started by MuleSoft and Tableau, made $1.59 billion, surging 24% in the most recent quarter.

However, investors did not seem to warm up to the Slack deal immediately. From the time the rumor surfaced just before Thanksgiving to December 2, 2020, Salesforce stock declined by 16.5%. That translated to about $18 billion of the company’s market cap lost in less than a week. In the 24-hour period following the announcement, the shares sank by 8.52%.

As of December 9, 2020, the shares are trading at $228.65, down by 5.59% over the past five days and almost 8% over the past month. They are up by 40% year-to-date (YTD) and 45.69% in the trailing 12-month period. The company’s market cap is $208.35 billion according to Marketwatch.

It is worth noting that over the past year, Slack generated $834 million in sales. In its most recent quarter, Q3 FY21 which ended on October 31, 2020, its revenue shot up by 39%. New paid customers numbered 12,000, an increase of 140% YoY. Furthermore, it had over 520,000 connected endpoints on Slack Connect, marking a 240% YoY increase.

However, since it went public in June 2019, it has not fared particularly well. It has faced stiff competition from the likes of and Microsoft Teams and video conferencing apps like Zoom. 

Despite having 142,000 paying customers, Slack had a GAAP operating loss of $65.7 million or 28% of total revenue in its most recent quarter.