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Overview of Q1 Performance in the Sales Software Sector
Earnings reports often provide insight into a company’s future direction. As we move past Q1, it’s essential to examine how key players in the sales software industry performed. Companies must effectively interact with and sell to their customers, which has driven demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.
Among the four sales software stocks we track, the group reported a strong Q1. Revenues exceeded analysts’ expectations by 2.1%, and next quarter’s revenue guidance was in line. However, despite these positive results, the overall performance of the sector has been mixed, with share prices declining on average by 3.4% since the latest earnings reports.
Salesforce (NYSE: CRM)
Salesforce, founded in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, is a software-as-a-service platform that helps companies access, manage, and share sales information such as leads.
In Q1, Salesforce reported revenues of $9.83 billion, reflecting a 7.6% year-over-year increase. This result surpassed analysts’ expectations by 0.8%. The company also delivered a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ billings estimates. Despite this, Salesforce had the weakest performance against analyst estimates among its peers. The stock is currently down 1.7% at $271.65.
Freshworks (NASDAQ: FRSH)
Freshworks, founded in Chennai, India in 2010, offers a broad range of software targeted at small and medium-sized businesses. In Q1, the company reported revenues of $196.3 million, up 18.9% year over year, outperforming analysts’ expectations by 2.1%. The business saw accelerating growth in large customers and a solid beat of analysts’ EBITDA estimates.
Freshworks delivered the fastest revenue growth among its peers, adding 717 enterprise customers paying more than $5,000 annually to reach a total of 23,275. The market seems pleased with the results, as the stock is up 4.4% since reporting and currently trades at $14.98.
ZoomInfo (NASDAQ: ZI)
ZoomInfo, founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, provides sales departments with access to a database of prospective clients. In Q1, the company reported revenues of $305.7 million, down 1.4% year over year, but exceeding analysts’ expectations by 3.2%.
Despite having the worst quarter among its peers, ZoomInfo still managed to lock in a solid beat of analysts’ billings estimates and an impressive beat of analysts’ annual recurring revenue estimates. The company added 1 enterprise customer paying more than $100,000 annually, bringing the total to 1,868. The stock is flat since the results and currently trades at $10.28.
HubSpot (NYSE: HUBS)
HubSpot, started in 2006 by two MIT grad students, is a software-as-a-service platform that helps small and medium-sized businesses market themselves, sell, and get found on the internet. In Q1, the company reported revenues of $714.1 million, up 15.7% year over year, surpassing analysts’ expectations by 2%.
HubSpot also put up an impressive beat of analysts’ billings estimates and a solid beat of analysts’ EBITDA estimates. The company scored the highest full-year guidance raise among its peers, adding 10,319 customers to reach a total of 258,258. However, the stock is down 15.5% since reporting and currently trades at $557.
Market Update
The Federal Reserve’s interest rate hikes throughout 2022 and 2023 have successfully cooled post-pandemic inflation, bringing it closer to the 2% target. Inflationary pressures have eased without tipping the economy into a recession, suggesting a soft landing. This stability, paired with recent rate cuts (0.5% in September 2024 and 0.25% in November 2024), fueled a strong year for the stock market in 2024.
The markets surged further after Donald Trump’s presidential victory in November, with major indices reaching record highs in the days following the election. Still, questions remain about the direction of economic policy, as potential tariffs and corporate tax changes add uncertainty for 2025.
For investors looking to capitalize on strong performers with solid fundamentals, exploring companies with strong momentum can be a strategic approach. These firms are well-positioned for growth regardless of political or macroeconomic conditions.
