Salesforce issues weak revenue guidance even as earnings beat estimates
- Salesforce reported better-than-expected earnings and revenue for the latest quarter but issued disappointing guidance.
- Salesforce's stock has been the worst performer in large-cap tech this year.
- The company announced the pending $8 billion Informatica acquisition in the quarter.
Salesforce issued disappointing guidance on Wednesday, even as earnings and revenue topped estimates for the fiscal second quarter. The stock dropped 4% in extended trading.
Here's how the company did in comparison with LSEG consensus:
- Earnings per share: $2.91 adjusted vs. $2.78 expected
- Revenue: $10.24 billion vs. $10.14 billion expected
Revenue increased 10% from $9.33 billion a year earlier, according to a statement. Net income rose to $1.89 billion, or $1.96 per share, from $1.43 billion, or $1.47 per share, a year ago.
For the fiscal third quarter, management called for $2.84 to $2.86 in adjusted earnings per share on $10.24 billion to $10.29 billion in revenue. Analysts polled by LSEG had been looking for $2.85 per share on $10.29 billion in revenue.
Salesforce maintained its full-year revenue outlook but now sees higher earnings. The company is targeting $11.33 to $11.37 in adjusted earnings per share on $41.1 billion to $41.3 billion in revenue. The consensus estimate from LSEG was $11.31 in earnings per share and $41.2 billion in revenue. The forecast in May included $11.27 to $11.33 in adjusted earnings per share.
Salesforce is dealing with challenges selling marketing and commerce products and slower growth in its expiration base, Robin Washington, the company's president and chief operating and financial officer, said on a conference call with analysts.
The company has fallen out of favor on Wall Street this year due to an extended stretch of meager revenue growth, which has been stuck in the single digits since mid-2024. While the company regularly touts its investments in artificial intelligence and the advancements in its software as a service, or SaaS, it hasn't been lifted by the artificial intelligence boom in the same way as many of its tech peers.
"To hear some of this nonsense that's out there in social media or in other places, and people say the craziest things, but it's not grounded in any customer truth," co-founder and CEO Marc Benioff said on the call.
Going into Wednesday's report, Salesforce was down 23% for the year, lagging behind all but one stock in the Dow and trailing all other large-cap tech companies.
The ratio of Salesforce's enterprise value to its free cash flow has reached a 10-year low because of fears of disruption from AI, according to analysts at Jefferies, who have a buy rating on the stock. Salesforce is trying to counter the pressure by selling its Agentforce AI software that can automate the handling of customer service questions.
Salesforce has racked up over 6,000 paid Agentforce deals, Benioff said.
During the fiscal second quarter, Salesforce said it was planning to increase the cost of some products and announced its intent to acquire data management software company Informatica for $8 billion.
On Wednesday Salesforce announced a $20 billion increase to its share buyback program, bringing the total to $50 billion.