Salesforce continued its metamorphosis to achieve superior financial outcomes post its remarkable Q2 triumph on Wednesday by surpassing expectations. This victory was accompanied by an uplift in profit forecast, successfully quelling concerns stemming from escalating competition from Microsoft and Oracle.
Solid Q2 Performance
Fueled by the upsurge in subscription and support revenue, Salesforce reported outstanding Q2 sales amounting to $9.32 billion, marking an 8% year-over-year climb, trumping estimates by 1%. The Q2 earnings per share (EPS) of $2.56 displayed a robust surge of 21% from the comparative period, outshining estimates by 9% at $2.35 a share.
Of particular note, Salesforce boasted an impressive operating cash flow of $892 million, showcasing a 10% year-over-year rise, with free cash flow reaching $755 million, reflecting a substantial 20% spike.
AI Innovations & Growth Trajectory
Highlighting the rapid integration of artificial intelligence across its product spectrum, Salesforce revealed that new bookings for its AI offerings more than doubled quarter-on-quarter. The firm secured 1,500 AI deals during Q2, including partnerships with major global brands like Alliant Energy.
For the fiscal year 2025, Salesforce maintains its total sales projection within the range of $37.7 billion-$38 billion, aligning with the Zacks Consensus outlook of $37.85 billion, translating to an 8% growth. Looking forward to FY26, Zacks anticipates Salesforce’s top line expanding by a further 9% to $41.23 billion.
Price Performance & Valuation Analysis
Despite facing mounting pressure from Microsoft’s Dynamic 365 CRM and Oracle CRM, Salesforce’s stock reveals a lackluster performance of -4% year-to-date, lagging behind its peers as Microsoft and Oracle stocks present a solid uptrend at +9% and +33% respectively.
Currently, Salesforce trades at 25.9 times forward earnings, slightly exceeding the S&P 500’s 23.6X multiple. Though trading below Microsoft’s forward earnings multiple of 31.6X, Salesforce commands a premium compared to Oracle’s 22.5X multiple.
Key Takeaways
In the present scenario, Salesforce secures a Zacks Rank #3 (Hold). Further positive momentum in Salesforce’s stock hinges on the trajectory of earnings estimate revisions post its stellar Q2 performance and boosted profit guidance. The exaggerated concerns regarding heightened competition from Microsoft and Oracle seem unfounded when juxtaposed with the company’s alluring growth trajectory.
