A comeback quarter for Salesforce (CRM).
Shares of the SaaS company rose 4% in after-hours trading on Wednesday as it beat Wall Street estimates for revenue, operating margins and profit.
The reaction – and the tone regarding the quarter’s performance – stands in stark contrast to the reaction just three months ago, when the company shockingly missed revenue forecasts for the first time since 2006.
Demand remains strong and there are “big targets” for operating margins and cash flow, Salesforce co-founder and CEO Marc Benioff told me on Yahoo Finance.
Sales increased by 11% in Europe and by 16% in the Asia-Pacific region (at constant currency). The company’s Americas segment recorded sales growth of 8%.
“I don’t think anyone expected a repeat of that performance (from last quarter),” Third Bridge analyst Charlie Miner told Yahoo Finance.
Miner added: “I think a lot of people are excited right now about the adjusted operating margin beat. Salesforce has been focused on profitability over the last six quarters, and you can’t ignore that right now, especially when (revenue) growth drops to single digits, which is only the second time in the company’s history.”
The company maintained its full-year revenue outlook but raised its expectations for operating margins, which could fuel enthusiasm that Salesforce’s various AI initiatives will boost profits.
To that end, Benioff announced the upcoming launch of AgentForce, which offers AI sales agents that go beyond chatbots and can answer customer queries. Benioff says more details will be announced in September at the company’s highly anticipated Dreamforce conference.
But he tells me the service offers a higher-margin opportunity and is priced on a per-call basis. Benioff expects there to be a billion agents in use by the end of fiscal year 2026.
He also says Microsoft has “misled” customers “by saying they have to do so much heavy lifting on the technology side.” Salesforce wants to allow customers to train their models within its platform.
“AI now offers them real added value,” he says of Salesforce’s offerings.
“One of the biggest initiatives in this space revolves around monetizing the AI theme within Salesforce’s massive installed base. We believe this is a huge opportunity that could significantly benefit Salesforce in the coming years and, based on our estimates and our work on the ground, could increase total revenue by over $4 billion per year by 2025,” Wedbush analyst Dan Ives wrote in a client note.
The results overview
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Net sales: $9.33 billion (+8% year-on-year) versus estimate of $9.23 billion (forecast: $9.2 billion to $9.25 billion)
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Currently remaining performance obligations: $26.5 billion versus $26.31 billion
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Adjusted operating margin: 33.7% versus 31.94% estimate
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Diluted EPS: USD 2.56 (+21% year-on-year) versus estimated USD 2.35
What also struck us: the view
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Sales forecast for the full year: $37.7 billion to $38 billion versus an estimate of $37.84 billion (previous forecast: $37.7 billion to $38 billion)
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Operating margin forecast for the full year: 32.8% versus 32.52% estimate (previous forecast: 32.5%)
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Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on X @BrianSozzi and further LinkedIn. Tips on deals, mergers, activist situations or other topics? Email [email protected].
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