Salesforce stock drops despite earnings beat

Key Points
  • Salesforce reported its second-quarter earnings on Tuesday after the bell, topping estimates.
  • Salesforce stock is trading roughly flat in after hours trading.
  • Investors are looking for signs of growth in Service Cloud, Commerce Cloud, and Einstein
Salesforce is strategically favorable: Pivotal Research's Brian Wieser

Salesforce reported its second quarter earnings on Tuesday after the bell, and the numbers came in above estimates.

Here are the most important numbers:

  • Adjusted EPS: 33 cents vs. 32 cents per share expected by a Thomson Reuters consensus estimate
  • Revenue: $2.56 billion vs. $2.51 billion expected by a Thomson Reuters consensus estimate

Despite the overall beat, Salesforce's stock dropped almost 3 percent before trading roughly flat in after hours. Salesforce's stock enjoyed a surprise 6 percent jump over the past couple weeks in the run up to Tuesday's earnings, and is up over 30 percent this year.

After going on a record buying spree in 2016, Salesforce has slowed its pace of acquisition this year, with only one deal announced so far. Instead, the business software maker has focused on generating growth from its prior deals, especially in the artificial intelligence market.

Salesforce's revenue saw a 26 percent jump from a year-ago period, while its deferred revenue, an important metric that reflects its future growth, grew 26 percent year-over-year as well, to $4.82 billion. Unbilled deferred revenue, the portion of contracts that have not been billed yet and off the balance sheet, also grew 30 percent from last year to $10.4 billion.

"We have $15B in on and off the balance sheet deferred revenue. That is the predictor of our future revenue growth. That's revenue that we have signed but not yet recognized. Incredible numbers," Salesforce CEO Marc Benioff said in an interview with CNBC's Jim Cramer.

The company's third quarter revenue is expected to be in the range of $2.64 billion to $2.65 billion, which exceeds street estimates of $2.61 billion.

Salesforce raised its full year guidance by $100 million to the range of $10.35 billion to $10.40 billion. That would make it the first year for Salesforce to cross the $10 billion annual revenue mark.

"We did this faster than any other enterprise software company in history," Benioff said in a statement.

Still, competition is increasing from companies like Microsoft, Oracle, and ServiceNow. Salesforce's Service Cloud, its second-largest business, has of late, leading to four leadership changes in four years.

For more on Salesforce, watch CEO Marc Benioff's interview on "Mad Money" tonight at 6 p.m. ET.

Salesforce beats on top and bottom line