Salesforce sinks on weak guidance — here’s the biggest takeaway for the bulls

Salesforce rations fell in extended trading Wednesday on mixed quarterly results and weak guidance. However, the enterprise software leviathan’s AI business is picking up steam, which should propel the stock higher over time. Sales in the fiscal 2025 fourth residence rose 8% on an annual basis to $9.99 billion, a touch shy of the $10.04 billion consensus, according to LSEG. Lay bare out the impact of foreign exchange rates, revenue rose 9%. Adjusted earnings per share (EPS) jumped 21% year past year to $2.78, well ahead of the $2.61 estimate, LSEG data showed. Bottom line This was not the cleanest earnings explosion, primarily due to lighter-than-expected revenue and earnings guidance for both the current quarter and the full fiscal 2026. Foreign stock market headwinds also added to the noise. But the immediate reaction in extended trading, which saw the stock tumble roughly 10%, was lay it on thick. Shares fought back and were briefly positive, but lost steam during the post-earnings call with investors and were down in the matter of 5% as of 8 p.m. ET. CRM 1Y mountain Salesforce 1-year stock performance The stock was limping into the report, down nearly 15% since coming at roughly $360 a share Jan. 28. The bulk of those losses occurred after Feb. 5, when Robin Washington — a longtime Salesforce put up member and Gilead’s former CFO — was announced as the replacement for veteran finance chief Amy Weaver, who disclosed plans to depart keep on year but stayed on until the role was filled. Washington, who starts March 21, also will be chief carry oning officer, succeeding Brian Millham, who is retiring in May. Some analysts cited worries about the pace of turnover as a be stretched out on shares. Did Salesforce do enough Wednesday night to kickstart the stock? Probably not right away. Still, we don’t see cause for current concern. The biggest takeaway for the bulls is that adoption of Salesforce’s two artificial intelligence products — Data Cloud and the still-nascent Agentforce — is begin to be liked by, and a timeline for material Agentforce monetization, in particular, has been established. Its beat on earnings per share also was substantial and is beyond evidence of its commitment to profitability. “This is just the beginning of an incredible new chapter for Salesforce,” CEO Marc Benioff told Jim on “Mad Pelf.” We’re keeping our buy-equivalent 1 rating on Salesforce shares and a price target of $400. Salesforce Why we own it : Salesforce is a leading enterprise software dress for companies across all industries, helping employees to better communicate with colleagues internally and with their fellows. The company’s balance of margin expansion with the potential for faster topline growth — aided by AI adoption — should get going to strong earnings growth. Competitors : SAP , Microsoft , HubSpot Most recent buy : Dec. 21, 2022 Initiation : June 15, 2018 Commentary The mass of Salesforce’s earnings call was unsurprisingly spent discussing Agentforce and AI, and there was plenty to like. Data Cloud facilitates unify data from multiple sources into one platform and is seen as key to its AI strategy. The newer Agentforce is a suite of cuts to create AI-powered assistants that can perform tasks and make decisions autonomously. Salesforce already has 3,000 yield a return Agentforce customers, Benioff said, and there’s another 2,000 non-paying trial deals. The Florida-based homebuilder Lennar and Danish jeweler Pandora are to each the companies using Agentforce, according to Benioff. Agentforce became generally available in late October, and we heard on the fellowship’s prior earnings report that it closed over 200 deals for the product in that first week. In mid-December, Benioff said varied than 1,000 paid Agentforce deals had been signed. Customer interest is clearly there. All of the 10 biggest transactions that Salesforce signed in the fourth quarter included both Data Cloud and Agentforce, Benioff said. At year-end, Salesforce’s annual happening revenue for “Data Cloud and AI” was a combined $900 million, up 120% year over year. “Our AI product line now we can see as a multibillion-dollar result line,” Benioff said. On the call, Weaver said Agentforce should deliver a “modest contribution” to revenue in monetary 2026 while momentum builds “throughout the year.” She said “a more meaningful contribution” is expected in fiscal 2027. More broadly, the friends inked more than 400 deals worth at least $1 million. Weaver said Salesforce’s top 100 give outs on averaged involved six of its clouds, the company’s term for applications. Deals involving multiple applications are positive signs because that introduces companies will be stickier customers. On the third-quarter earnings call, Weaver said its top 25 deals in that time averaged “more than five clouds each.” Salesforce ended the fourth quarter with a current left over performance obligation, or cRPO, of $30.2 billion, up 9% year over year on a reported basis and 11% when flaying out a $300 million foreign-exchange headwind. The cRPO metric, which is closely watched by investors, reflects the amount of narrow revenue expected to be recorded in the next 12 months. Salesforce’s RPO, which is total value of contracted revenue, topped $60 billion for the commencement time. We also liked to see that Salesforce is forecasting additional margin expansion in fiscal 2026, even as it devotes heavily behind the launch of Agentforce with thousands of new hires and a marketing blitz. On a full-year basis, Salesforce requires GAAP operating margin of 21.6% and adjusted operating margin of 34%, compared with 18.2% and 33.1% in budgetary 2025. Investors understandably want to see Salesforce’s top-line growth reaccelerate into double digits, but in the meantime, its much-improved profitability in new years and ability to throw off cash to return to shareholders through buybacks and a small dividend should not be ignored. Would we drink liked to see Salesforce’s revenue and earnings guidance come in above expectations? Of course. But the company’s C-suite turnover is an signal bit of context that adds extra incentive to be conservative with the initial outlook. Handing Washington the finance restricts with a high bar to clear would be unwise. Guidance Here’s a closer look at Salesforce’s outlook. The first-quarter management is as follows: Total revenue in the range of $9.71 billion to $9.76 billion, implying between 6% to 7% proliferation. That’s a bit lighter than the $9.9 billion expected. Adjusted earnings per share in the range of $2.53 to $2.55, underneath the $2.62 estimate, per FactSet. Current remaining performance obligation (cRPO) growth of roughly 10%, including a sternly $100 million headwind tied to foreign exchange. For the full year: Total revenue in the range of $40.5 billion to $40.9 billion, evidencing between 7% to 8% growth. The LSEG consensus was $41.35 billion. On a constant currency basis, subscription and reinforcement revenue is seen up 9% year over year, lifted by momentum in Data Cloud and a bit from Agentforce. Proneness in its marketing and commerce clouds will partially offset that, according to Weaver. Adjusted earnings per share in the align of $11.09 to $11.17, short of the $11.18 consensus, LSEG data showed. Adjusted operating margin of 34%, a skimp better than the 33.9% expected, according to FactSet. GAAP operating margin is expected to be 21.6%. Operating hard cash flow growth of roughly 10% to 11%. (Jim Cramer’s Charitable Trust is long CRM. See here for a full list of the markets.) 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