Salesforce (NYSE:CRM) stock hasn’t performed well in 2024, down over 3%, as company budgets moved to hardware investments from enterprise software.
The leader in cloud-based software specializes in customer relationship management solutions — hence the Salesforce stock symbol — has trailed many of its large-cap tech peers in recent years.
As a result, Salesforce is working to cut costs while still investing in new products. In mid-July, Salesforce cut about 300 jobs as it searched for the right balance between innovation and austerity.
“Like any healthy business, we continuously assess whether we have the right structure in place to best serve our customers and fuel growth areas,” Bloomberg reported comments from a spokesperson. “In some cases that leads to roles being eliminated.”
Combined with 700 job cuts earlier this year and 8,000 in January 2023, it’s cut 9,000 over the past two years, or about 11% of its total workforce at the end of 2022.
Has the bloodletting ended? Is now the time to buy? Maybe. Here are three reasons why.
What To Expect From Its Q2 2025 Results?
Salesforce will report Q2 FY25 results on August 28 after the markets close. The average earnings estimate of the 37 analysts providing one is $2.36 a share, about 11% higher than Q2 FY24. The revenue estimate from 35 analysts is $9.23 billion, 7% higher than $8.60 billion a year earlier, about 400 basis points less than revenue growth in Q2 FY24. The company’s guidance for Q2 FY25 is $9.25 billion at the midpoint, identical to Wall Street’s consensus estimate.
Salesforce expects revenue of $37.85 billion for all of 2025, up 8.5% over 2024. That’s 250 basis points less than it generated last year. So, its business faces headwinds in 2025, and the staff cuts reflect this.
As for profitability, it expects a non-GAAP operating margin of 32.5% in 2025, 200 basis points higher than in 2024.
Despite the 250 basis point slowdown in revenue growth in 2025, it still expects to generate $12.30 billion in operating profits this year, up from $10.64 billion in 2024, a nearly 16% gain.
So, life is not miserable for Chief Executive Officer and founder Marc Benioff.
Where’s Its Focus?
Profitability remains vital to its success. A company won’t have capital to grow its business without profits and cash flow. Fortunately, CRM’s profits aren’t the problem.
“Our profitable growth trajectory continues to drive strong cash flow generation. Q1 operating cash flow was $6.25 billion, up 39% year-over-year. Q1 free cash flow was $6.1 billion, up 43% year-over-year,” Benioff said in its Q1 2025 press release.
“We are at the beginning of a massive opportunity for our customers to connect with their customers in a whole new way with AI. As the world’s #1 AI CRM, we’re incredibly well positioned to help companies realize the promise of AI over the next decade.”
Before I get into AI and its role in Salesforce’s growth, let’s briefly talk about free cash flow generation.
In 2024, it generated $9.50 billion in free cash flow, 50% higher than in 2023. In 2025, assuming its 43% increase in the first quarter is maintained throughout the year, it will generate $13.59 billion this year. That’s a free cash flow margin of nearly 36%. I don’t mind those numbers.
Based on its current enterprise value of $227.44 billion, it has a free cash flow yield of 6.0%. Anything between 4% and 8% is fair value and above 8% is undervalued.
How Much Will AI Contribute to Its Business?
Like most tech businesses, that’s the billion-dollar question. In Salesforce’s case, it has created the Einstein 1 platform with Einstein Copilot. This integrates a generative AI assistant into all of its apps.
“Salesforce is pricing Copilots based on seats and some element of usage. We believe Copilot’s impact to revenues will be more meaningful in fiscal 2026, and less so in fiscal 2025. Longer term, Copilots could impact seat growth,” Investor’s Business Daily reported BMO Capital Markets analyst Keith Bachman’s comments in late July.
“Hence, like many software companies, Salesforce will likely evaluate changing pricing models to incorporate value or usage rather than just seats.”
As it works AI into its business model over fiscal 2025, it has chosen to slow acquisitions and improve profits to appease activist investors.
Further, and this relates to its increased free cash flow, it paid its first dividend of 40 cents per share in April. Its annual rate of $1.60 yields 0.7%. Share repurchase programs from 2022 through 2024 created $30 billion in future buybacks without expiry. Of those, it has $16.2 billion left.
For now, it won’t matter what it does about AI. CRM’s capital allocation practices have become very shareholder-friendly.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
