However, CRM initiated a new long-term revenue target of $26-$28 bln in FY22, reflecting a very healthy CAGR of 19% over the next four years. Simply put, there are very few, if any, companies of this scale that have the potential to organically double its revenue in this short of a time frame.
That helps explain why the stock is expensive, trading with a 1-year forward P/S and P/E of 7.6x and 46x, respectively. Heading into last night's print, the stock had been surging higher, up about 35% from its late December lows. That run pushed its valuation higher, but, it also created a situation in which many investors were sitting on sharp gains -- setting up the profit-taking scenario we are seeing play out this morning.
For the quarter, CRM posted EPS of $0.70, beating the $0.55 consensus, on revenue growth of 26% to $3.6 bln versus the $3.56 bln consensus.
The company has outperformed revenue and EPS expectations in every quarter stretching back to at least 2014. Equally impressive is the fact that even as CRM has grown into a $13 bln business, its revenue growth has barely slowed down. On that note, over the past 18 quarters, CRM's revenue growth has fluctuated between a tight 23-29% range.
This speaks to a couple different factors. First, the total addressable market for CRM and others is immense as more companies invest in digital capabilities. The e-commerce channel has simply become critical for companies across many industries
Also, CRM is clearly the dominant force in CRM cloud software and continues to take market share. During its earnings call last night, management estimated that it commands about 20% of the overall market, more than the next three competitors (ORCL, SAP, and MSFT) combined.
CRM is growing much faster than any of those companies. For instance, ORCL's saw a yr/yr decline in revenue this past quarter, and prior to that, its top line was growing in the mid-single-digit range. SAP has fared a little better, posting 9% growth last quarter, but it hasn't topped 20% growth since 4Q14. Clearly, CRM is gaining market share on these competitors.
Of course, much has been made of how the economic slowdown in China has impacted corporate earnings and outlooks. It didn't seem to hurt CRM much as revenue in the APAC region climbed by 26%, matching its growth in the Americas. Its CEO stated last night that while European CEOs seem to have more anxiety than executives from other geographies, revenue still jumped by 31% in EMEA on a constant currency basis. That illustrates the importance management teams are placing on this type of software.
The Americas region is still by far its largest market at about 72% of total revenue. However, that margin is expected to shrink as CRM is aggressively investing in geographies outside the U.S to better serve its multi-national customers. In fact, 42% of its new hires in Q4 were in geographies outside the U.S.
As a result of the ramp-up in hiring, its operating expense increased by 32% to $2.5 bln, while its Non-GAAP operating margin also slipped to 16.5% from 18.1% (In constant currency) in the year ago quarter. That's also a far cry from its long-term operating margin target in the mid-30% range.
The lack of progress in terms of margins could be construed as a blemish on its financials. CRM still clearly considers itself in the up-swing of its growth curve, not near maturity. To make that point, its CEO commented that it recently spoke to the head of a large consulting firm, who said that about 85% of their top 50 customers were just getting started in terms of their digital transformations. From a product standpoint, this opportunity should especially benefit its Service Cloud and its Marketing/Commerce Cloud segments.