TLDR
- Salesforce (CRM) stock fell 7% premarket after issuing weak Q3 revenue guidance below analyst expectations
- Company beat Q2 estimates with $2.91 EPS and $10.24 billion revenue, up 10% year-over-year
- Q3 revenue forecast of $10.24-$10.29 billion disappointed investors expecting stronger AI-driven growth
- CEO Marc Benioff called the guidance “appropriately conservative” during CNBC interview
- Stock down 24% year-to-date despite $20 billion buyback increase and cheaper valuation than competitors
Salesforce stock dropped sharply in premarket trading Thursday after the cloud software giant issued disappointing third-quarter revenue guidance. The 7% decline came despite the company beating second-quarter financial expectations.
The enterprise software company reported second-quarter adjusted earnings of $2.91 per share on revenue of $10.24 billion. Revenue grew 10% compared to the same period last year. Wall Street analysts had projected earnings of $2.78 per share and revenue of $10.14 billion.
However, Salesforce’s forward-looking statements caused concern among investors. The company forecast third-quarter revenue between $10.24 billion and $10.29 billion. The midpoint fell short of the $10.29 billion analyst consensus estimate.
AI Investments Face Scrutiny
Salesforce has invested heavily in artificial intelligence technology across its platform. The company launched Agentforce in late 2024, an AI agent platform designed to automate business tasks and improve operational efficiency.
Despite these investments, the revenue forecast suggests AI returns remain unclear. Economic uncertainty has led customers to reduce cloud spending, affecting growth projections.
CEO Marc Benioff defended the company’s approach during a Wednesday evening CNBC interview. “Our results are absolutely fantastic and our guidance is also, you know, is always appropriately conservative,” Benioff stated.
The conservative outlook reflects broader industry challenges. Cloud companies face pressure to demonstrate returns on massive AI investments while dealing with cautious enterprise customers.
Strategic Moves and Market Position
Salesforce announced a $20 billion increase to its share buyback program. The move failed to offset investor disappointment over the revenue guidance.
The company has pursued strategic acquisitions after years of organic growth focus. In May, Salesforce completed its $8 billion acquisition of data management platform Informatica.
J.P. Morgan analysts noted growth has not accelerated as expected. “Growth has not inflected yet and investors are thus not seeing an imminent need to revise their thought process,” they wrote.
Salesforce stock trades at 20.98 times forward earnings estimates. This compares favorably to Microsoft at 31.26 times and Oracle at 30.84 times forward earnings.
Some analysts view the current valuation as attractive. J.P. Morgan described Salesforce shares as trading at “historically low valuation level and deep discount to software peers.”
The stock closed Wednesday at $256.45 before falling to $238.30 in premarket trading Thursday. Shares have declined 24% year-to-date through Wednesday’s close.
Salesforce provided third-quarter GAAP earnings guidance of $1.60 to $1.62 per share, below the $1.83 analyst estimate.
