A recovery quarter for Salesforce (CRM).
Shares of the SaaS company rose 4% in after-hours trading on Wednesday after revenue, operating margin and earnings beat Wall Street expectations.
The reaction, and the mood surrounding this quarter's results, is in stark contrast to just three months ago, when the company missed revenue expectations for the first time since 2006.
Salesforce co-founder and CEO Marc Benioff told Yahoo Finance that demand remains strong and the company has “aggressive ambitions” around operating margins and cash flow.
Sales increased 11 percent in Europe and 16 percent in Asia Pacific at constant exchange rates. In the company's Americas segment, sales increased 8 percent.
“I don't think anybody was expecting a repeat of that performance,” Third Bridge analyst Charlie Miner told Yahoo Finance.
Miner added, “I think what a lot of people are excited about right now is the beat-up adjusted operating margin result. Profitability has been a total focus for Salesforce over the last six quarters, and it can't be overlooked, especially now that (revenue) growth has slowed to single digits for only the second time in the company's history.”
The company maintained its full-year revenue guidance but raised its operating margin forecast, which may spur hopes that Salesforce's various AI initiatives will boost profits.
To that end, Benioff teased the upcoming release of AgentForce, which will feature AI sales agents that can resolve customer inquiries beyond chatbots — details of which Benioff said will be announced at the company's high-profile Dreamforce conference in September.
But Benioff said the service represents a higher margin opportunity and pricing will be determined through discussions. He expects 1 billion agents to be on board by the end of fiscal 2026.
He also said Microsoft “misled customers into thinking they had to do a lot of heavy lifting on the technical side.” Salesforce aims to let customers train models within its platform.
“They're now getting real value from AI,” he says of Salesforce's products.
“One of the biggest initiatives in this space is monetizing AI themes within Salesforce's massive installed base. This represents a huge opportunity for Salesforce to realize significant benefits over the next few years, and based on our estimates and on-the-ground research, we believe it could drive over $4 billion in incremental overall revenue annually by 2025,” Wedbush analyst Dan Ives wrote in a client note.
Revenue Breakdown
Revenue: $9.33 billion (up 8% year over year), expected to be $9.23 billion (guidance: $9.2 billion to $9.25 billion)
Current remaining performance obligations: $26.5 billion vs. $26.31 billion
Adjusted operating margin: 33.7% (expected: 31.94%)
Diluted EPS: $2.56 (up 21% year over year) vs. expected: $2.35
The story continues
Another thing that caught my attention was the outlook.
Full-year revenue guidance: $37.7 billion to $38.0 billion (previous guidance: $37.7 billion to $38.0 billion vs. expected $37.84 billion)
Full-year operating margin guidance: 32.8% vs. 32.52% (previous guidance: 32.5%)
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Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on X Brian Sozzi You can also find me on LinkedIn. Looking for tips on deals, mergers, the activist landscape, and more? Email me at [email protected].
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