Salesforce earnings surprise, but the bears on the stock still lurk: What Wall Street is saying

Salesforce (CRM) shares edged up after the company raised its full-year sales and profit guidance, citing strong bookings, revenue, and currency tailwinds; data cloud and AI businesses are reporting annual recurring revenue exceeding $1 billion, a 120% year-over-year increase. While some analysts highlight decelerating subscription growth in Salesforce's core cloud businesses (Sales, Service, and Marketing), others point to positive growth in current remaining performance obligation (cRPO) and overall positive commentary as reasons for optimism, particularly at the current share price.

Analysis

Salesforce (CRM) has distinguished itself this earnings season by raising its full-year sales and profit guidance, a move CEO Marc Benioff attributed to robust bookings, revenue, and favorable currency movements. A key highlight is the performance of its data cloud and AI businesses, which are now generating annual recurring revenue exceeding $1 billion, a significant 120% year-over-year increase, complemented by over 8,000 deals for its new Agentforce technology, half of which are paid. JP Morgan expressed satisfaction with Salesforce's reported 10-11% organic constant currency current remaining performance obligation (cRPO) growth, aligning with their model. However, analyst sentiment is mixed regarding the composition of this growth. Guggenheim noted that while management emphasized accelerating growth, this acceleration was concentrated in the Platform business (housing Agentforce and Data Cloud, which grew 14% from 12% in the prior period), whereas core cloud segments like Sales (+7% from +9%), Service (+7% from +9%), and Marketing (+4% from +8%) all saw decelerating growth. This resulted in a moderation of overall constant currency subscription growth to 8.7%, down from 9.1% in the previous quarter and 12.8% year-over-year. In contrast, KeyBanc remained optimistic, pointing to an 11% constant currency cRPO growth, which surpassed estimates of 10%, and a strong 16.3% current bookings growth, as sufficient reasons for a positive outlook despite some headline metrics being considered merely adequate or slightly disappointing.

Key Decisions for Investors

• Investors should acknowledge Salesforce's positive revised full-year guidance and the substantial growth momentum in its AI and data cloud segments, which are becoming significant revenue contributors.
• Careful attention should be paid to the decelerating growth rates in Salesforce's core Sales, Service, and Marketing cloud businesses, as this trend could offset gains from newer ventures and impact overall long-term subscription growth.
• Monitor upcoming current remaining performance obligation (cRPO) figures and new bookings growth closely, as these leading indicators will be critical in assessing whether the newer AI and platform initiatives can effectively drive sustained company-wide acceleration.
• Consider the divergent analyst perspectives: while strong performance in new technology areas like AI and robust bookings are positive, the slowdown in core subscription services warrants a balanced assessment of the company's valuation and future growth trajectory.