CRM Earnings Preview: Watching for the AI impact
Salesforce (CRM) is set to release its Q3 FY2025 earnings after the market closes on December 3. Analysts expect adjusted EPS of $2.43, a year-over-year increase from $1.40, on revenue between $9.31 billion and $9.36 billion, reflecting 7% annual growth. The company previously guided FY2025 revenue at $37.7 billion to $38 billion, with an adjusted operating margin of 32.8%. This quarter’s results will provide insight into how Salesforce is executing against its updated AI-driven strategy and whether it can meet its guidance despite macroeconomic challenges.
Investors will closely monitor key performance indicators like current remaining performance obligation (cRPO), a measure of contracted revenue expected to be recognized in the next 12 months. Last quarter, cRPO grew 10% year-over-year, and similar growth is anticipated this quarter. Additionally, analysts are focused on operating margin performance, with Salesforce targeting 32.8% for the full year. Free cash flow (FCF) guidance will also be critical, especially as analysts see a path to $20+ per share in FCF by 2028.
Salesforce’s AI initiatives, particularly its Agentforce platform, have garnered significant attention. Since its launch at the Dreamforce event in October, Agentforce has been promoted as a transformative tool for automation in customer service and sales. Positive customer feedback has fueled optimism around AI’s potential to drive growth, although commercialization remains in its early stages. Beyond Agentforce, Salesforce’s Data Cloud and Einstein AI continue to gain traction, with Data Cloud showing 130% customer growth year-over-year last quarter.
While sentiment has improved—shares are up over 30% since Dreamforce—analysts remain cautious about several factors. Slowing subscription revenue growth, which is projected at 9% for FY2025, could temper enthusiasm. Additionally, the upcoming CFO transition adds uncertainty to Salesforce’s longer-term outlook. Macroeconomic headwinds, including restrained IT budgets, may weigh on near-term results, though Q4 IT budget flushes could provide some relief. Analysts like Deutsche Bank highlight the challenge of sustaining sentiment-driven gains in the absence of stronger bookings growth.
Salesforce delivered strong Q2 results, exceeding expectations on both earnings and revenue. Adjusted EPS came in at $2.56, beating the consensus estimate of $2.35 and growing from $2.12 in the prior year. Revenue increased by 8.4% year-over-year to $9.33 billion, slightly ahead of the $9.23 billion estimate. Subscription and support revenue, which constitutes the bulk of Salesforce’s business, grew 9.5% to $8.76 billion, surpassing estimates of $8.7 billion. Key operational metrics, such as adjusted operating margin, also impressed at 33.7%, above the expected 32%.
AI remained central to Salesforce’s strategy, with CEO Marc Benioff highlighting the success of Agentforce, an AI-powered platform that automates customer service and sales processes. The company signed 1,500 AI-related deals in the quarter and reported 130% year-over-year growth in paid Data Cloud customers. These achievements underscore Salesforce’s leadership in integrating generative AI across its product suite, particularly through innovations like Einstein, which is positioned to drive long-term margin improvements.
Analysts were particularly interested in Salesforce’s remaining performance obligation (RPO) and current RPO (cRPO), which reflect future revenue commitments. RPO increased by 10%, signaling strong booking momentum and early renewals. Despite the positive quarter, the company’s Q3 revenue guidance of $9.31–$9.36 billion fell slightly below the $9.42 billion consensus. However, Salesforce raised its full-year EPS guidance to $10.03–$10.11 (above the $9.89 estimate) and improved its operating margin outlook to 32.8%, reinforcing its focus on profitability.
Shares of Salesforce rose 4% in extended trading, reflecting investor optimism over the cleaner results and improved guidance. Analysts remain bullish, with Stifel raising its price target to $320 and highlighting Salesforce’s compelling position as a value play in the AI theme. Canaccord also emphasized Salesforce’s stable foundation among large customers, calling it a "durable growth compounder." Looking ahead, the Dreamforce event is expected to serve as a catalyst, showcasing Salesforce's ongoing advancements in AI and its broader product portfolio.
Analysts generally maintain a favorable view, with price targets ranging from $365 to $425, reflecting optimism in Salesforce's AI-driven transformation. Piper Sandler notes that FY2026 will be a critical transitional year as Salesforce focuses on scaling AI and automation solutions. Meanwhile, Citi and Scotia highlight Agentforce’s potential to drive multi-cloud adoption and improve ROI for customers. With improved operating margins and AI innovation as tailwinds, this quarter will set the stage for Salesforce’s trajectory into FY2026, making its guidance updates and AI commercialization progress key themes to watch.