CRM pops 10% in after hours as AI hype continues

Salesforce (CRM) posted mixed Q3 results, reporting adjusted EPS of $2.41, slightly below expectations of $2.44, while revenue of $9.44 billion surpassed the consensus estimate of $9.35 billion. Revenue growth was 8.3% year-over-year and 8% on a constant currency basis, reflecting steady performance in its core subscription-driven business. Despite the modest EPS miss, the company’s strong revenue and operating margin performance highlighted effective execution during the quarter.

The current remaining performance obligation (cRPO), a critical metric combining deferred revenue and backlog, rose 10% year-over-year to $26.4 billion, slightly ahead of estimates of $26.1 billion. Subscription and support revenue grew 9.1% year-over-year to $8.88 billion, slightly above estimates of $8.82 billion, driven by strong contributions from sales and service offerings. Professional services revenue declined by 2.4% to $565 million, reflecting weaker demand in that segment.

Sales revenue rose 11% year-over-year to $2.12 billion, exceeding estimates of $2.06 billion, while service revenue increased 10% to $2.29 billion, above expectations of $2.26 billion. Marketing and commerce grew 8%, and platform and other revenue expanded by 8%, supported by adoption of the company’s AI-powered solutions. These gains were offset by weaker performance in integration and analytics, which grew by only 5%.

Salesforce achieved adjusted operating income of $3.12 billion, up 15% year-over-year, and an adjusted operating margin of 33.1%, exceeding expectations of 32.2%. The improvement in profitability underscores Salesforce’s ongoing focus on operational discipline, even as it invests in growth areas like AI. Free cash flow rose 30% year-over-year to $1.78 billion, reflecting robust cash generation capabilities.

Salesforce provided Q4 revenue guidance of $9.9 billion to $10.1 billion, slightly below the consensus estimates of $10.05 billion, implying 7%–9% year-over-year growth. For FY2025, Salesforce raised the low end of its revenue guidance to $37.8 billion–$38 billion, reflecting growth of 8%–9%, and maintained its full-year adjusted operating margin forecast of 32.9%. These updates demonstrate confidence in steady growth while highlighting its commitment to profitability.

CEO Marc Benioff emphasized the transformative role of AI in Salesforce’s strategy, particularly its Agentforce platform, which integrates autonomous AI agents across its portfolio. With AI adoption accelerating, Salesforce reported increased customer interest and highlighted opportunities to monetize its AI innovations. The company signed 1,500 AI-related deals in Q3 alone, signaling significant traction for its generative AI solutions.

Following the results, Salesforce shares rose over 10% in extended trading, reflecting investor confidence in its ability to sustain growth while expanding margins. With the stock up 25% year-to-date and expectations for continued AI-driven expansion, Salesforce remains a top pick for investors seeking exposure to enterprise software and AI themes.

Analysts were encouraged by the strong cRPO growth and margin performance but noted weaker demand in professional services and integration segments. The market will be closely watching the company’s ability to capitalize on AI-driven opportunities and sustain its leadership in customer relationship management (CRM) and related software markets. AI adoption remains a focal point, with analysts optimistic about the company’s long-term potential.

Salesforce’s Q3 results underscore its resilience and ability to navigate macroeconomic challenges while executing on its AI-driven transformation. The company’s strong cash flow and disciplined growth strategy position it well for sustained long-term performance. With a robust product portfolio and focus on innovation, Salesforce is well-positioned to lead the next phase of enterprise software evolution, driven by AI and digital transformation.