A rebound quarter for Salesforce (CRM).
Shares of the SaaS company jumped 4% in after-hours trading Wednesday, beating Wall Street estimates for sales, operating margins and profit.
The reaction — and the tone around the quarter’s performance — is in stark contrast to just three months ago, when the company surprisingly missed sales estimates 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 11% in Europe and 16% in Asia Pacific at constant exchange rates. 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.
“What I think a lot of people are excited about right now is the adjusted operating margin beat. Profitability has been Salesforce’s top priority over the last six quarters, and you can’t miss it right now, especially when (sales) growth is slowing to single digits, for only the second time in the company’s history,” Miner added.
The company maintained its full-year sales forecast but raised its operating margin forecast. That could fuel excitement about Salesforce’s ability to boost profits through its various artificial intelligence initiatives.
To that end, Benioff mentioned the upcoming launch of AgentForce, which offers AI sales agents that go beyond chatbots and can resolve customer queries. Benioff said more details will be shared in September at the company’s widely-attended Dreamforce conference.
But he told me the service represents a higher-margin opportunity and will be priced based on conversations. Benioff envisions a billion agents in service by the end of fiscal 2026.
He also claims that Microsoft has “misled” its customers “into believing that they have to do a lot of work on the technology side.” Salesforce wants to allow its customers to train their models within its platform.
“They’re getting real value from AI now,” he says of Salesforce’s offerings.
“One of the biggest initiatives in the space is to monetize the AI theme within Salesforce’s massive installed base. We believe this is a major ground-grab opportunity that could significantly benefit Salesforce over the next several years and could add more than $4 billion to overall revenue annually based on our estimates and field work by 2025,” Wedbush analyst Dan Ives wrote in a client note.
The Benefits Summary
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Net turnover: $9.33 billion (+8% year-on-year) versus an estimate of $9.23 billion (forecast: $9.2 to $9.25 billion)
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Current Remaining Performance Obligations: $26.5 billion vs. $26.31 billion
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Adjusted operating margin: 33.7% against 31.94% estimated
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Diluted EPS: $2.56 (+21% year-on-year) vs. estimated $2.35
What also caught our attention: the prospects
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Full year sales forecast: $37.7 billion to $38 billion versus $37.84 billion estimated (previous forecast: $37.7 billion to $38 billion)
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Full-year operating margin forecast: 32.8% versus 32.52% estimated (previous forecast: 32.5%)
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Brian Sozzi is the Editor-in-Chief of Yahoo Finance. Follow Sozzi on X @BrianSozzi and on LinkedIn. Advice on transactions, mergers, activism situations or anything else? Email brian.sozzi@yahoofinance.com.
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