Shares of Salesforce rose in extended trading Tuesday after the enterprise software giant reported better-than-expected quarterly revenue and issued a strong outlook for the current period. But more importantly, the company has shown that Agentforce, its new AI platform, could drive revenue growth in the future. Revenue in the third quarter of fiscal 2025 rose 8% year over year to $9.44 billion, above the high end of guidance and the $9.35 billion that analysts had expected, according to estimates compiled by LSEG. Adjusted earnings per share of $2.41 increased 14% year over year, beating the $2.44 that analysts had expected, LSEG data showed. Adjusted operating margin expanded to 33.1% in the three months ended Oct. 31, beating the consensus estimate of 32.27%, according to FactSet. On a GAAP basis, operating margin was 20%, higher than expected at 18.93%. CRM YTD Mountain Salesforce Stock Performance in 2024. Bottom line, Salesforce delivered the goods. With the stock up more than 10% to $360 per share in extended trading, we are increasing our price target to $400 from $300. However, we are maintaining our rating of 2 due to its recent rally, which means we will wait for pullbacks before adding to the position. Wall Street is poised to look past Salesforce's slight loss in adjusted EPS due to upbeat revenue performance. Investors know Salesforce has become disciplined on margins, but what the market wants to see next to push the stock higher is better growth. Quarterly results and forecasts showed that the company's fundamentals remained resilient without any contribution from one of the most exciting products in its history: Agentforce. Salesforce Why we own it: Salesforce is a leading enterprise software tool for companies across all industries, helping employees communicate better with their colleagues internally and with their customers. The company's balance between margin expansion with the potential for faster revenue growth — aided by AI adoption — should lead to strong earnings growth. Competitors: SAP, Microsoft, HubSpot Last purchased: December 21, 2022 Started: June 15, 2018 Agentforce is the company's platform for AI-powered assistants that can perform tasks and make decisions autonomously. This new product has completely reshaped the Arrow story. When the stock traded in the low $200s over the summer, there was fear that AI would disrupt Salesforce's business model. The concern was essentially that if companies needed fewer workers thanks to AI, companies that sell software licenses on a per-person basis might, as a result, experience less demand. Salesforce has squashed this bear hypothesis over the past few months, especially after its annual Dreamforce conference in September, when it unveiled Agentforce in earnest. The platform only became generally available in the last week of Salesforce's reported quarter, so it's still too early in the adoption cycle to materially contribute to important financial metrics, such as current remaining performance obligation, or cRPO. This metric reflects the amount of contracted revenue expected to be recorded in the next 12 months. In contrast, RPO is the total value of contracted revenue. Although new, Agentforce is off to an amazing start, which is very promising for what's to come. “We have become a supplier of digital labor,” CEO Marc Benioff told Jim Cramer on “Mad Money” Tuesday night. “This digital job opportunity is amazing, and we couldn’t be more excited.” “The results, as of this quarter, are already showing what will be possible in the future. We closed more than 200 Agentforce deals in the first week of availability.” Benioff said early clients include device maker SharkNinja, London Heathrow Airport and recruitment firm Adecco. Agentforce's pipeline “is in the thousands for potential transactions” in future quarters, Benioff added on the earnings call. The market had high expectations for Agentforce going into the quarter, as evidenced by Salesforce shares rising more than 30% since Dreamforce in mid-September. What we learned Tuesday evening supports that hype, and this may be just the thing the company needs to reaccelerate revenue growth to at least 10%, a key level for investors. Quarterly Commentary At a high level, it is clear that Agentforce and other Salesforce AI-related solutions have brought new energy to deal making. It allayed concerns about lengthened sales cycles, increased scrutiny of deals, and other software sales buzzwords that have plagued the industry since 2022. In the third quarter, the company said the number of contracts it won worth more than $1 million using its AI tools included more Three times more year after year. The total number of AI deals exceeded 2,000, including the more than 200 Agentforce deals we mentioned earlier, executives said. Salesforce's Data Cloud application — which helps unify data from multiple sources into a single platform — may be the main driver for those other contracts. Salesforce refers to its various applications as “clouds,” such as Sales and Service Cloud. Salesforce is seeing momentum across multi-cloud deals, which is a great sign. Its top 25 deals this quarter averaged more than five clouds each. Deals involving multiple applications are particularly encouraging for investors because that indicates companies will be more consistent customers. “Our multi-cloud strategy is also core to our financial strategy,” CFO Amy Weaver said on the earnings call. “Multi-cloud customers enjoy higher spend, lower attrition rates, and drive significant scale (annual recurring revenue) for us every quarter.” The company said back in August that Weaver would step down as CFO but would remain in the role until a successor is named. Salesforce recorded a significant profitability milestone in the third quarter: GAAP operating margins reached 20% for the first time in the company's history, an important step in its ongoing cost discipline management journey. But one thing to keep in mind in the coming quarters is the level of investment needed to support the growth opportunities in Agentforce and Data Cloud. To meet demand for Agentforce, the company plans to hire 1,400 account executives worldwide in the fourth quarter. Salesforce repurchased roughly $1.2 billion worth of stock in the August-October quarter, down from the $4.3 billion it repurchased in the previous three-month period. However, the total number of sequentially diluted shares fell to about 965 million from 973 million, which is more significant. Salesforce offers a buyback program that offsets the dilution of stock-based compensation — previously a point of contention for some investors. On an annual basis, its diluted share count is down 2%, and the company has about $10.6 billion left under its $30 billion license. Guidance For the fiscal fourth quarter, Salesforce expects revenue in the range of $9.9 billion to $10.1 billion. The $10 billion midpoint is relatively in line with the consensus estimate of $10.05 billion, according to LSEG. On the bottom line, the company expects adjusted earnings per share of $2.57 to $2.62, which about $2.60 ahead of LSEG's estimate of $2.66. FactSet data showed that Salesforce expects cRPO to increase 9% year over year to an implied $30 billion, which is roughly in line with the consensus forecast of $30.08 billion. As a reminder, Salesforce does not expect a material contribution to cRPO from Agentforce-related bookings. On a full-year basis, the company raised its minimum revenue guide, increased its operating margin, and revised its operating margin forecast. It also raised its operating cash flow guidance. (Jim Cramer's Charitable Trust is a long CRM. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. 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Pedestrians near the Salesforce Tower in San Francisco, California, on Wednesday, January 25, 2023.
Marlena Sloss | Bloomberg | Getty Images
shares Sales force It rose in extended trading on Tuesday after the enterprise software giant reported better-than-expected quarterly revenue and issued a strong forecast for the current period. But more importantly, the company has shown that Agentforce, its new AI platform, could drive revenue growth in the future.
