Salesforce.com (SFDC) Q2 FY21 Earnings Call: Key Takeaways

Financials

Enterprise Value:	$191.2 billion	Annualized Recurring Revenue (ARR):	$19.4 billion
Enterprise Value / LTM Revenue:	9.5x	YoY Growth Rate:	31.6%
Enterprise Value / ARR:	9.9x	Gross Margin:	74.5%

Despite the COVID -19 pandemic, Salesforce just posted its best-ever quarter

• Milestones include its first-ever $5B quarter (29% increase YOY), its highest-ever operating margins (EBITDA margin of 16.1%) and a 63% increase in seven-figure deals from the previous year. Sales Cloud grew 13%, Service Cloud grew 20%, Commerce Cloud and Platform and others grew 66%.
• “Each crisis has been an accelerator in the future.” Marc Benioff recalled the financial crisis of 2008 and how Salesforce saw major growth in the aftermath.
• Big wins from the quarter include:
  • AT&T: Deal was from the previous quarter, but during Q2 saw a deployment of its Customer 360 solution in hundreds of stores and an increase of about 35,000 new users.
  • PayPal: Right place, right time – COVID-19 and the rise of contactless payments.
  • Work.com: COVID-19 contact tracing, workforce command – partnership with the University of Kentucky.

Key drivers of this quarter’s outperformance

• Better new business generation, Q2 business consistent with historical trends.
• Higher license value driven by new business outperformance.
• Modestly better revenue attrition than expected.
• Achieved certain performance obligations within last quarter’s AT&T transaction.
  • Remaining performance obligations representing future revenues under contract: $30.6B, 21% YOY increase – this figure includes new business and renewals.
  • Current remaining performance obligations: $15.2B up 26% YOY – this includes all future revenues under contract expected to be recognized within the next 12 months.
• Favorable FX rates.

Service Cloud and Commerce Cloud continue to accelerate their growth

• Service Cloud is their largest individual cloud and saw a record Q2 with over 20% growth. The last six months have seen a 600% increase in messaging platform use, with around 19 million conversations per day in the last quarter. Service Cloud plays an integral role in Customer 360.
• Commerce Cloud also saw tremendous growth, at 21% YOY – largely thanks to the broad digitization of commerce. Its differentiation mainly lies in that it is the only platform that does both B2B and B2C and its integration with the rest of Customer 360.

M&A outlook

• In the earnings call, Marc Benioff noted that he didn’t see much of an M&A environment for Salesforce going forward – noting that they were lucky to pick up Mulesoft and Tableau when they did at those valuations.
• Of the $20B – $21B of revenue Salesforce is forecasting for FY21, Vlocity is projected to account for $100M of that total. In our Spotlight on the Vlocity acquisition, we discussed the acquisition in context of Salesforce’s emphasis on vertically-focused software and predicted that trend would continue to grow, a prediction supported by the Q2 performances of Service, Sales and Commerce Clouds.
• In the earnings call, Benioff described Tableau’s service offering as a democratization of analytics, calling it “analytics for the rest of us.” As discussed in our Spotlight on Salesforce’s acquisition of Tableau, we discuss Tableau’s platform synergies with Einstein AI and SFDC’s Customer 360 initiative.
  • Tableau accounted for 41 BPs of the 66% increase in growth for Platform and other services in Q2.
• Benioff also called MuleSoft the “heart and soul” of Customer 360 in the call. Within Customer 360, MuleSoft takes in legacy systems and integrates APIs to enhance their capabilities. In our Spotlight covering the MuleSoft acquisition, we discussed the importance of APIs in a multi-cloud environment.
• In our last Spotlight discussing Salesforce’s quarterly earnings (Q4 FY19), many of the topics we discussed, such as the continued growth of Salesforce’s B2B2C vision (commerce and marketing cloud growth), a focus on vertical solutions and Global SIs looking to expand their SFDC practices (Infosys – Simplus, Infosys – Fluido, Cognizant – Advanced Technology Group) have become major themes and trends within the space.