Salesforce earnings preview: Strong financial performance amid market speculation

Whispers of Salesforce potentially acquiring data management firm Informatica sent ripples through the market and saw the stock slide 7% last month, according to analysts. This speculation came at a pivotal moment for Salesforce, fresh off a turbulent 2022 marked by activist investor pressure and a renewed focus on profitability.

In response to activist pressure, the company dissolved its mergers and acquisitions committee in early 2023, signalling a pause on major spending. However, the meteoric rise of generative AI has reshaped the strategic landscape, potentially reawakening Salesforce’s appetite for acquisitions like Informatica.

Salesforce shrugged off market turbulence, delivering a robust fourth-quarter earnings report that surpassed Wall Street’s expectations. The company also surprised investors by announcing its first dividend of 40 cents per share and a $10 billion boost to its share buyback program, bringing the total repurchase amount to roughly $12 billion since August 2022. These moves signal Salesforce’s financial strength and dedication to rewarding shareholders. However, the company’s revenue forecast for fiscal 2025 fell short of analyst predictions, somewhat dampening the initial market enthusiasm.

Facing pressure from activist investors, Salesforce has shifted its focus to enhancing profitability, implementing cost-cutting measures like the elimination of 700 jobs announced in late January. Despite the company’s stock surging nearly 98% in 2023 and an additional 12% in 2024, some analysts caution that solely focusing on margin improvement may not be enough to propel the stock further. They emphasise the need for Salesforce to reignite its revenue growth to maintain its upward trajectory.

Salesforce earnings report

At its Dreamforce conference in September, Salesforce highlighted its increased focus on generative AI, launching the Einstein 1 platform and the Einstein Copilot feature. Salesforce’s strategic initiatives in AI are expected to play a key role in driving future growth, alongside its continued investments in digital transformation projects.

Salesforce’s Q4 earnings showed significant growth, with earnings rising 36% to $2.29 per share on an adjusted basis and revenue climbing 11% to $9.29 billion. Analysts had expected earnings of $2.27 per share on sales of $9.22 billion. Additionally, current remaining performance obligations (RPO) bookings rose 12% to $27.6 billion, surpassing estimates of $27.09 billion.

For the current quarter ending in April, Salesforce projected revenue in the range of $9.12 billion to $9.17 billion, aligning with analysts’ estimates of $9.14 billion. For full-year 2025, Salesforce expects revenue in the range of $37.7 billion to $38 billion, with growth of 9%, slightly below the estimates of $38.57 billion or 11% growth.

Technical analysis and market sentiment

Analysts note that technical indicators paint a picture of strong bullish momentum for Salesforce this year, with CRM stock surging nearly 12% since January. However, the stock’s current position touching the upper Bollinger Band is perceived to signal potential overbought conditions, hinting at a possible slowdown or reversal in the near future.

The Relative Strength Index (RSI) displays flat at around 58, indicating potential exhaustion of the up move in the short term. Analysts say traders may expect key support levels to be identified at $272 and $268 should these overbought conditions lead to a price slide.

Salesforce’s Q4 earnings, dividend announcement, and share buybacks showcase its strength amidst market volatility. However, the company’s cautious revenue outlook and potential overbought stock conditions suggest that its path forward may not be entirely smooth. The company’s ability to re-accelerate growth while managing margins will be key as it navigates activist investors, AI advancements, and acquisition speculation. Traders will undoubtedly be watching closely as the CRM giant continues to evolve and adapt in this dynamic environment.