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Salesforce (CRM +6%) remains a force to be reckoned with this year as shares pop to December 2021 levels today following outsized Q3 (Oct) performance. The customer relationship management software behemoth, the third-largest enterprise software company by revenue globally, stayed consistent in the quarter, topping earnings and sales expectations. CRM also provided relatively healthy Q4 (Jan) guidance, projecting earnings ahead of consensus and revs consistent with consensus.

CRM delivered these results despite working with an unfavorable macroeconomic backdrop. CEO Marc Benioff was not ready to firmly state that economic conditions have turned a corner. Customers are still measured in their buying environments, particularly within CRM's professional services business, which remained a laggard in Q3. Nevertheless, Mr. Benioff mentioned that conditions are improving, observing a distinct reduction in measured buying environments. Customers are also eager about AI and the technology's possibilities over the long term.

• These positive developments sustained CRM's upward momentum in Q3, delivering adjusted EPS of $2.11, a 50.7% jump yr/yr, and revs of $8.72 bln, an 11.3% improvement. Deals over $1.0 mln surging by 80% yr/yr were a significant factor behind CRM's solid growth in the quarter. Also, MuleSoft remained a notable standout, being in eight of CRM's top ten deals during the quarter, underpinning robust demand for the product.
• Geographically, sales growth branched from each of CRM's major markets, expanding by 9% in the Americas, 14% in EMEA, and 18% in APAC. New business primarily emanated from India, Brazil, and Japan, while parts of EMEA were more constrained. From an industry perspective, the public sector was a highlight, while high tech remained more measured.
• Non-GAAP operating margins expanded considerably during Q3, surging by 850 bps yr/yr to 31.2%. While this did represent a minor slowdown from the past two quarters of over 1,000 bps of margin expansion, it was still a testament to CRM's financial discipline. Recall that CRM announced plans to cut over 10% of its workforce by the end of FY24, following in the footsteps of other software companies, like Microsoft (MSFT) and HubSpot (HUBS).
• Current remaining performance obligation (cRPO), representing the next 12 months of revenue under contract, ended the quarter up 14% yr/yr to $23.9 bln, ahead of CRM's expectations. Strong renewal performance and a large customer win during Q3 were primary contributors.
• Looking toward the end of FY24, CRM expects to sustain its positive momentum, projecting adjusted EPS of $2.25-2.26, a 34% improvement yr/yr, and revs of $9.18-9.23 bln, roughly 10% growth at the midpoint.

With shares soaring by over 70% ahead of CRM's Q3 results, it was under pressure to supply investors with attractive results. CRM did not buckle, staying true to its consistent form and delivering another quarter of impressive headline results. Even more notable is that CRM did so despite plenty of lingering uncertainties among organizations, which have kept deal scrutiny elevated and buying urgency low.

Finally, at current extended price levels, we think a pullback would provide a more attractive entry point. Over the long term, CRM is nicely positioned for further upside as AI becomes increasingly more mainstream and economic conditions recover.