Salesforce’s raised guidance lifts the stock but doesn’t change our rating
Salesforce on Wednesday reported mixed third-quarter results — a small sales miss and a huge earnings beat. Still, shares jumped higher in after-hours trading after the enterprise software giant raised its full-year outlook for both headline numbers. Revenue in its fiscal 2026 third quarter rose 8.6% year over year to $10.26 billion, missing expectations of $10.27 billion, according to LSEG. Adjusted earnings per share (EPS) increased 35% year over year to $3.25, beating the consensus estimate of $2.86, LSEG data showed. It also helped that investor expectations were low heading into the print. The stock entered Wednesday evening down about 28% year to date and has struggled to regain upward momentum amid lingering concerns that artificial intelligence will displace software. Shares popped in mid-October to $246 after management announced a new long-term revenue target of more than $60 billion by fiscal year 2030, but fell to a 52-week low of $225.37 on Nov. 20. With the 2% move higher in after-hours trading, Salesforce is priced at roughly $245 per share. CRM YTD mountain Salesforce YTD return Bottom line It wasn’t a squeaky-clean quarter, but the positives outweighed the negatives. Total sales were just $13 million short of the consensus estimate, with weakness in the company’s two smaller applications, called “clouds”: Marketing and Commerce, and Integration and Analytics. The three larger clouds — Sales, Service, and Platform & Other — were all better than expected. Agentforce, the company’s AI-powered platform, closed more than 9,500 paid deals since its launch in the fall of 2024, up from the over 6,000 disclosed last quarter. In addition, six of the top 10 deals in the quarter were “driven by companies that just want to transform with Agentforce,” according to CEO Marc Benioff. Although sales aren’t a material contributor to the company just yet, momentum is building. Agentforce’s annual recurring revenue increased 330% year over year to $540 million. And Salesforce is steadfast in its belief that Agentforce usage will continue to grow as companies become an agentic enterprise, meaning systems can operate autonomously . During the conference call, Benioff pointed out that 50% of its Agentforce new bookings this quarter came from existing customers increasing their investment, which he said is a sign of strong adoption. Another positive was operating margins — on both a generally accepted accounting principles (GAAP) basis and an adjusted basis that excludes items such as stock-based compensation and severance costs. Both were much better than expected and increased significantly year over year, thanks in part to timing expenses and to a “bad debt” expense adjustment after strong collection performance. Why we own it Salesforce is a leading enterprise software platform for companies across all industries, helping employees better communicate internally and with their customers. The company’s balance of margin expansion with the potential for faster topline growth — aided by AI adoption — should lead to strong earnings growth. Competitors : SAP , Microsoft , HubSpot Most recent buy : March 5, 2025 Initiation : June 15, 2018 One more thing to like was the backlog strength. Its future revenue pipeline — remaining performance obligation (RPO) and current remaining performance obligation (cRPO) — grew by double digits and exceeded analyst estimates. Also, management’s rosy cRPO outlook for the fourth quarter sets up a solid fiscal year ahead. The company continues to expect revenue to reaccelerate over the next 12 to 18 months, which is the most important thing investors want to see. Delivering double-digit top-line growth while steadily improving margins should get this stock back on track. Additionally, the company repurchased $3.8 billion of stock in the quarter, the most in a single quarter this year. In the prior quarter, Salesforce announced a $20 billion expansion to its share repurchase authorization. Management’s willingness to step in and aggressively repurchase stock is a signal to the market of its conviction in Agentforce and its belief that shares are cheap. The stock looked poised for a larger move higher shortly after the numbers came out, but it drifted lower as the evening and the earnings call progressed. One reason could be that the Informatica deal was a big source of the positively revised guidance. (The company’s $8 billion acquisition closed in mid-November.) Still, the organic performance should be solid enough. If Agentforce can deliver as advertised and the company’s revenue growth accelerates back to 10%, better days are ahead for the stock. But for now, we’re maintaining our 2 rating and $300 price target. Guidance Salesforce raised guidance for its fiscal year 2026, and the early close of the Informatica deal contributed to some of that upside. It now expects revenue in the range of $41.45 billion to $41.55 billion, or up 9% to 10% year over year. Informatica is adding approximately 80 basis points to growth. It was previously expected to have year-over-year revenue growth of 8.5% to 9%. On a constant-currency basis, revenue is expected to grow 9% year over year, up from the prior view of 8%. GAAP earnings per share are expected to be in the range of $7.22 to $7.24, an increase from its prior outlook of $6.99 to $7.03. Adjusted EPS is expected to be in the range of $11.75 to $11.77, up from its prior view of $11.33 to $11.37. The new outlook is well above the consensus estimate of $11.38, but primarily reflects a pass-through of the huge third-quarter beat. For the fourth quarter, Salesforce expects the following: Revenue of $11.13 billion to $11.23 billion, reflecting growth of 11% to 12% year over year or 10% to 11% on a constant currency basis. That’s higher than the consensus estimate of $10.91 billion. Informatica is adding 3 percentage points to growth. Adjusted earnings per share of $3.02 to $3.04, which captures the consensus estimate of $3.04 at the top end of the range. A solid acceleration in cRPO growth, which is expected to increase 15% year over year, or 13% on a constant currency basis. This is well above analyst expectations of about 10% growth. Informatica is adding four points to that growth rate. (Jim Cramer’s Charitable Trust is long CRM. See here for a full list of the stocks.) 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