Popular customer relationship management platform provider Salesforce (NYSE:CRM) has been sliding recently. Its stock is down close to 17% year to date., which is a little bit paradoxical given that management posted solid results last quarter.
So, why exactly is Salesforce’s stock slipping?
Top Line Grew 8% and Subscriptions Up 9%
Salesforce posted a strong fourth quarter with noticeable growth. Total revenues for the quarter increased by 8% from the prior year’s period to $9.99 billion.
The company makes the majority of its top line from the subscriptions and support segment, which also grew by 8% from its year-ago value to $9.45 billion; it also made up 95% of the total top line, as opposed to 94% in the year-ago period.
Salesforce faced a ballpark $75 million incremental headwind from unfavorable exchange rate movements. Shedding the impact of this, the top line grew by 9% year-over-year in constant currency.
Subscription and support revenue also grew by 9% due to a tailwind from growth in sales, service, and platform sub-segments. However, Mulesoft and Tableau offerings saw some weakness, mainly because the prior-year performance was exceptional, creating tougher comparisons.
The leadership team reported an annual revenue of $37.90 billion for fiscal 2025, representing an increase of 9% year-over-year. Salesforce reported seeing AI momentum in the last fiscal year. Data cloud and AI annual recurring revenue went up by 120% year-over-year to $900 million. Salesforce’s customers, all coming from diverse industries, now average nearly four clouds.
These results were based on solid operative figures. The company’s Agentforce offering, which is a suite of autonomous AI agents, has picked up steam. In the fourth quarter, the sales team closed more than 5,000 Agentforce deals, with more than 3,000 paid deals. Salesforce now sells to nearly half the Fortune 100 as its data cloud and AI customers.
Salesforce posted $63.4 billion in remaining performance obligations. This figure becomes important for a subscription-based company like Salesforce because it indicates that with its current subscriptions, there is revenue left to be earned. A year prior, RPOs stood at $56.9 billion. So, there has been an increase in this regard.
Coming to its profitability, the company is robustly profitable. The solid top line performance, and due to some discipline exhibited when it comes to its management of expenses, the company reported a quarterly operating margin on a non-GAAP basis of 33.1%, indicating a 170 basis point jump from the prior year’s period.
Its quarterly non-GAAP net income jumped by 21% from the prior year’s period to $2.78 per share. The company posted a free cash flow of $3.82 billion, up 17% from the prior year’s quarter.
What About Salesforce’s Shareholder Returns?
Salesforce hiked its quarterly cash dividend by 4% to $0.42 per share for an annual dividend of $1.66 per share and yields 0.67% on the prevailing share prices.
The payout ratio stands at 15.70%, which is quite low and leads to a lot of opportunity to hike payouts.
Last year, Salesforce returned $7.8 billion in the form of share repurchases and $1.5 billion in dividend payments to stockholders, which means that its total cash returned to stockholders stood at $9.3 billion.
The company’s CFO, Amy Weaver, also mentioned that the capital return program has returned $21 billion to shareholders since its inception.
Why Did Salesforce’s Stock Drop After Its Latest Results?
Despite posting top and bottom-line gains, Salesforce’s stock dropped because analysts were expecting more from the company. Wall Street analysts were expecting a fourth-quarter revenue of $10.04 billion, as opposed to $9.99 billion that Salesforce reported.
Analysts were expecting an adjusted bottom line of $2.61 per share, while the company posted $2.78 per share.
The company was also lagging behind Visible Alpha estimates for its segmental revenues. Subscription and Support service revenue of $2.33 billion was below the $2.37 billion projected. Its sales revenue of $2.13 billion lagged behind the $2.17 expected.
Management forecasts revenues for next year to come in between $40.5 billion and $40.9 billion, implying a 7% – 8% year-over-year growth, short of the $41.35 billion consensus projection. Adjusted EPS is likely to be in the range of $11.09 to $11.17. Yet, the Street’s projection was at $11.18.
Its Agentforce offering, although it had a solid year in FY 2025, is expected to contribute modestly to Salesforce’s top line in the current fiscal year, while it is expected to make a bigger contribution in the following fiscal year.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
