Salesforce Guidance Falls Short of Expectations, Stock Plummets
Salesforce (NYSE: CRM), a leading customer relationship management software provider, reported its first-quarter earnings for fiscal year 2025 after market close on Wednesday. The company’s revenue came in at $9.13 billion, representing an 11% year-over-year increase but falling slightly short of analysts’ average outlook of $9.17 billion.
Salesforce posted a GAAP operating margin of 18.7% and a non-GAAP operating margin of 32.1%. The company’s operating cash flow surged 39% year-over-year to $6.25 billion, while its free cash flow rose 43% to $6.08 billion. During the quarter, Salesforce returned $2.2 billion to stockholders through share repurchases and $0.4 billion through dividends.
Salesforce Earnings and Guidance Disappoint
Despite the revenue growth, Salesforce’s performance failed to meet market expectations. The company’s current remaining performance obligations (CRPO) bookings increased by 10% year-over-year, missing the average analyst expectation of 11.9%.
For the second quarter of fiscal year 2025, Salesforce provided revenue guidance in the range of $9.20 billion to $9.25 billion, representing a 7% to 8% year-over-year growth. However, this guidance fell below analysts’ average estimate of $9.34 billion. The company also lowered its full-year GAAP operating margin guidance to 19.9% while maintaining its non-GAAP operating margin guidance at 32.5%.
Salesforce Stock Drops 18% as Market Reacts
Following the earnings announcement and guidance, Salesforce stock experienced a significant 18% drop. Major banks, such as Morgan Stanley and Barclays, reacted negatively to the report, citing weak AI revenue contributions and deteriorating business performance as key concerns.
Analysts doubted Salesforce’s ability to compete effectively in the AI-focused tech landscape, pointing to the company’s weak guidance and execution issues.
As of 9:58 AM EDT on May 30, 2024, Salesforce stock was trading at $218.49, down 19.57% from the previous day’s close.
The company’s market capitalization stood at $212.204 billion, with approximately 4,100,000 shares traded. Salesforce’s stock has underperformed the S&P 500 over the past year, with a return of 1.55% compared to the index’s 24.94% gain. The stock’s three-year and five-year returns also lagged behind the S&P 500, at -8.12% and 43.09%, respectively, compared to the index’s returns of 24.98% and 88.80% over the same periods.
The significant drop in Salesforce’s stock price can be attributed to the company’s weak earnings and disappointing guidance. Prior to the earnings announcement, the stock had already experienced a decline of 2.5% over the previous five days and 12% over the last three months.
What other firms might feel the heat of AI-focused tech expectations? Let us know in the comments.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
