What Happened?
Shares of CRM software giant Salesforce (NYSE: CRM) jumped 4.4% in the morning session after the company reported better-than-expected third-quarter earnings and provided an optimistic financial outlook.
Salesforce's adjusted earnings for the quarter came in at $3.25 per share, which was well above what analysts had expected. While revenue of $10.26 billion was just shy of estimates, the strong profit performance caught investors' attention. Looking ahead, the company offered upbeat guidance for the fourth quarter, with expected earnings and revenue both topping consensus estimates. Salesforce also raised its full-year fiscal 2026 guidance for both revenue and earnings. A key factor behind the strong results and positive outlook appeared to be the rapid growth of its AI offerings. The company's Agentforce and Data 360 products reached nearly $1.4 billion in annual recurring revenue, a 114% increase from the previous year, and the number of paid Agentforce customers grew by 50% from the previous quarter.
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What Is The Market Telling Us
Salesforce’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock dropped 6.4% on the news that the company reported underwhelming first-quarter 2025 results (fiscal 2026), with high expectations heading into the quarter, suggesting markets wanted a more resounding beat, as sales, earnings, and operating profits all came in mostly in line the Wall Street's estimates.
On a more positive note, Salesforce beat analysts' billings expectations by a more convincing margin, and its full-year EPS guidance was raised and slightly exceeded Wall Street's estimates.
Some Wall Street analysts weren't impressed at all with the results raising concerns including weak RPO growth to acquisition-related points and macro uncertainty.
For example, RBC Capital analyst Rishi Jaluria downgraded the stock to Sector Perform from Outperform and reduced their price target on the stock to $275 from $420. The analysts added "Stepping back, while we like the margin expansion story at Salesforce and the valuation is undemanding, deal risk with Informatica has tipped the scales for us."
Lastly, some investors were likely skeptical of Salesforce's $8 billion acquisition of Informatica. The company's historical large acquisitions (Tableau, Slack) were met with some uneven results and skepticism over strategic rationale. Because of that, Salesforce has been focused on organic growth and margin expansion in the last few years. This latest deal could be a change of tone, and some are not happy about that prospect.
Salesforce is down 21% since the beginning of the year, and at $261.33 per share, it is trading 27.8% below its 52-week high of $361.99 from December 2024. Investors who bought $1,000 worth of Salesforce’s shares 5 years ago would now be looking at an investment worth $1,148.
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