Summary
Salesforce closed the third quarter of fiscal 2021 with revenue of $5.42 billion, up 20.1 percent from the prior-year quarter. Constant currency growth was 19 percent. Gross profit rose 19.1 percent to $4.02 billion, but gross margin of 74.3 percent slipped 0.6 percentage points as service delivery and employee costs grew faster than revenue. Subscription and support made up 94 percent of total revenues. Nine month revenue through October 31, 2020 was $15.44 billion, up 26 percent.
Profitability swung sharply. Operating income was $224 million, up 244.6 percent from $65 million in the prior-year quarter, and operating margin of 4.1 percent improved 2.7 percentage points. Net income of $1.08 billion compared with a prior-year loss of $109 million, and diluted earnings per share of $1.15 compared with a loss per share of $0.12. Much of that turn came from below the operating line. Gains on strategic investments, net reached $1,036 million, driven by a $1.1 billion unrealized gain after one portfolio company completed its initial public offering in September 2020. The press release notes that mark-to-market accounting added $0.83 to GAAP diluted earnings per share. Year to date, operating income of $262 million was down 21.3 percent, so the quarter's operating improvement does not carry through the full nine months.
Cash flow held up. Operating cash flow for the quarter was $339 million, up 13.8 percent, and capital expenditures fell 27.1 percent to $124 million. Free cash flow, which the company defines as operating cash flow less capital expenditures, was $215 million versus $128 million a year earlier. Nine month operating cash flow of $2.63 billion was down 2.7 percent, hurt by changes in billing frequency and by investments in go-to-market efforts during the pandemic.
Backlog metrics kept growing. Deferred revenue of $7.92 billion rose 15.5 percent from the prior year, and total remaining performance obligations of $30.3 billion rose 17 percent. Current remaining performance obligation, the portion expected to convert within the next 12 months, was approximately $15.3 billion, up 20 percent. Total cash, cash equivalents and marketable securities ended the quarter at $9.49 billion.
Guidance frames the next few quarters. For the fourth quarter of fiscal 2021, revenue guidance is approximately $5.665 billion to $5.675 billion, up about 17 percent year over year, with current remaining performance obligation growth of about 16 percent. Full year fiscal 2021 revenue guidance was raised to approximately $21.10 billion to $21.11 billion, up about 23 percent, with GAAP operating margin guidance initiated at approximately 2.0 percent and non-GAAP operating margin guidance held at approximately 17.6 percent. Full year operating cash flow growth is guided to about 12 to 13 percent. For the first quarter of fiscal 2022, revenue guidance is approximately $5.680 billion to $5.715 billion, up about 17 percent. Full year fiscal 2022 revenue guidance is approximately $25.45 billion to $25.55 billion, up about 21 percent, and includes approximately $600 million from Slack and approximately $150 million from Acumen Solutions.
Two corporate items shape the outlook. Mark Hawkins will retire as president and CFO, serving in the role until January 31, 2021, then moving to an advisory role through October 2021, and Amy Weaver, currently president and chief legal officer, becomes CFO on February 1, 2021. Salesforce also agreed to acquire Slack at an enterprise value of approximately $27.7 billion, backed by a $10 billion 364-day bridge facility, with closing assumed in the second quarter of fiscal 2022 and subject to regulatory approvals.
Management flagged several risks. New business growth that slows in a given period can pressure future revenue and remaining performance obligation. Attrition, reported at less than ten percent as of October 31, 2020, could rise. Salesforce plans to consolidate and sublease real estate in select locations in the fourth quarter, which could produce impairments. COVID-19 remains the largest unknown, and management expects only modest growth in new business, renewals, revenue and operating cash flow in the fourth quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $5.42B | $5.15B | +5.2% | $4.51B | +20.1% |
| Gross profit | $4.03B | $3.84B | +4.8% | $3.38B | +19.1% |
| Gross margin | 74.3% | 74.5% | -0.3 pp | 74.9% | -0.6 pp |
| Research & development | $902.0M | $898.0M | +0.4% | $774.0M | +16.5% |
| Sales & marketing | $2.38B | $2.27B | +4.5% | $2.06B | +15.2% |
| General & administrative | $522.0M | $489.0M | +6.7% | $477.0M | +9.4% |
| Total operating expenses | $3.80B | $3.66B | +3.8% | $3.31B | +14.7% |
| Operating income (loss) | $224.0M | $178.0M | +25.8% | $65.0M | +244.6% |
| Operating margin | 4.1% | 3.5% | +0.7 pp | 1.4% | +2.7 pp |
| Net income (loss) | $1.08B | $2.63B | -58.8% | -$109.0M | +1091.7% |
| Net margin | 19.9% | 51.0% | -31.0 pp | -2.4% | +22.4 pp |
| Diluted EPS | $1.15 | $2.85 | -$1.70 | -$0.12 | +$1.27 |
Risks
The COVID-19 pandemic and related public health measures have materially affected how Salesforce and its customers operate, and have materially affected operating results and cash flows; the duration and future impact remain uncertain. MD&A notes first quarter fiscal 2021 new business declined, while second and third quarter new business grew at historical trends, and virtual events may not generate the same leads as in-person events.
The pending Slack acquisition, expected to close in the second quarter of fiscal 2022, is subject to regulatory and Slack stockholder approvals and may be delayed or not completed. Failure to realize anticipated benefits or integration disruptions could adversely affect results, dilute EPS and negatively impact the stock price.
Fair value adjustments for publicly traded and privately held equity investments flow through the statement of operations. In FY2021 Q3, net income benefited from a $1.1 billion unrealized gain tied to the IPO of one strategic investment, and future market volatility may cause material gains or losses.
Salesforce services store sensitive customer data and the company is a target of malicious cyber-attacks. Work-from-home conditions related to COVID-19 could adversely affect security measures and incident response, and a material breach could harm reputation, sales and financial results.
Salesforce had a substantial level of debt as of October 31, 2020 and obtained a commitment for a $10 billion 364-day senior unsecured bridge loan facility in connection with the Slack acquisition. Covenants, refinancing risk and rating downgrades could impair financing flexibility and cash flows.
Greater targeting of larger enterprise and governmental customers may lead to longer, more expensive sales cycles, pricing pressure, configuration and integration challenges, and delayed revenue recognition. Periodic changes to the sales organization and COVID-19 disruptions can reduce sales productivity and growth.
The business depends on key executive, development and operations personnel, and competition for skilled engineers, sales executives and data scientists is significant. Remote work and culture challenges may make it harder to attract and retain employees.
Privacy laws such as the California Consumer Privacy Act and the EU GDPR, cross-border data transfer restrictions, evolving cloud computing regulation, government contract procurement rules and export controls create compliance costs and potential liability.
The enterprise cloud market is intensely competitive, and Salesforce must expand beyond CRM and continuously enhance AI offerings while addressing social and ethical issues related to AI use. Failure to keep pace with technological developments could reduce revenue growth.
Customers have no obligation to renew subscriptions and may renew for fewer subscriptions or shorter terms. Attrition rates may increase due to COVID-19, customer spending levels or competition, and the company has less experience forecasting renewal rates for term software license sales from MuleSoft and Tableau.
The global work-from-home environment may have long-term effects on office needs. In Q4 FY2021, Salesforce plans to consolidate and sublease existing real estate leases in select locations, which could result in impairments to operating lease right-of-use assets and additional costs.
Unanticipated changes in the effective tax rate and global tax developments, including OECD and European Commission attention to taxation of the digital economy, could affect cash flows. The nine months ended October 31, 2020 included a $2.0 billion one-time tax benefit from an intra-entity transfer of intangible property.
SaaS KPIs
All quarters →Free cash flow
Non-GAAP operating margin
Billings and other
Current Remaining Performance Obligation
Remaining Performance Obligation
Summary, forecast, risks and KPIs are extracted from Salesforce, Inc.'s SEC filings for Q3 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.