Salesforce reported mixed earnings and revised its guidance lower, causing a 16% drop in its shares. Despite missing revenue estimates, the company saw a 11% increase in revenue year-over-year and a 44% rise in adjusted earnings per share. The adjusted operating margin expanded to 32.1% but fell short of the consensus estimates. The company continues to be a leading enterprise software tool, helping companies improve communication with colleagues and customers.
Competitors for Salesforce include SAP, Microsoft, and HubSpot. The company’s recent buy was in December 2022, with the initiation in June 2018. Salesforce raised its adjusted earnings forecast for the year, but lowered its sales growth outlook, leaving investors uncertain about its future growth potential. The company’s profitability remains strong, especially with its data cloud business outpacing expectations and healthy expansion on a year-over-year basis.
Salesforce’s post-earnings call revealed a challenging buying environment with elongated deal cycles and high budget scrutiny. The company’s data cloud business was included in 25% of its $1-million-plus deals, and it added 1,000 data cloud customers for the second consecutive quarter. The revenue attrition rate remains low at around 8%, indicating strong customer loyalty despite budget constraints. Cash flow was a highlight of the quarter, with significant returns to shareholders through buybacks and dividends.
For its 2025 fiscal year, Salesforce reiterated total revenue guidance of $37.7 billion to $38 billion, an 8% to 9% increase over the previous year. The company revised its revenue growth forecast for the subscription and support business to slightly below 10% and reduced its operating margin target. However, adjusted earnings per share guidance increased, exceeding Street estimates. For the second quarter, Salesforce expects revenues of $9.2 to $9.25 billion and adjusted earnings per share of $2.34 to $2.36, both below analyst estimates.
The decline in Salesforce’s shares may be overdone, but it reflects concerns about slowing growth. Other companies in the sector, like Workday, have also seen drops in their stock prices following earnings reports. The company’s strong focus on shareholder returns through dividends and buybacks, along with the directionality of profitability, provide some comfort amidst the uncertainty. Salesforce’s low revenue attrition rate indicates the importance of its offerings to customers, potentially leading to a rebound in corporate budgets in the future.
In conclusion, Salesforce’s recent performance may have disappointed investors, but the company’s strong fundamentals and focus on shareholder returns offer some reassurance. While the near-term outlook may be challenging due to the slower sales growth, the company’s position as a leader in the enterprise software industry and continued expansion in its data cloud business are positive indicators for its long-term growth potential. Investors should proceed cautiously, considering the uncertain timing of growth reacceleration, but opportunities for future investment may arise as the company navigates the current challenges.
