First quarter revenue came in at $11.1bn ($11.1bn expected), up 12% ignoring currency moves. Within that, subscription and support revenue rose 12% to $10.6bn, including a $428mn contribution from the recently acquired Informatica.
Underlying operating profit rose to $3.9bn, up around 22% year on year.
Free cash flow rose 4% to $6.6bn. Net debt, including leases, was $30.0bn at the period end.
Salesforce returned $27.5bn to shareholders in the quarter and announced a new $25bn accelerated buyback, expected to be completed by the third quarter.
Second quarter revenue is expected to be $11.27-11.35bn, implying 10% growth year on year. Full year revenue guidance of $45.9-46.2bn implies around 10-11% growth. Free cash flow growth is now expected to be around 4-5% (previously 9-10%).
The shares were down 1.2% in after-hours trading.
Our view
Salesforce delivered a steady quarter, but the update failed to settle the bigger debate around AI. Revenue growth remains decent, AI-related products are showing traction, and management still expects growth to pick up in the second half. The sticking point is that some forward-looking indicators, including billings and orders, have yet to show the benefits.
Salesforce is a cloud platform giant that helps businesses manage customer relationships, sales, service, marketing and commerce in one place. Over time, it has become deeply embedded in enterprise workflows, giving it strong customer relationships and a valuable base of data to build from. That matters because customers are more likely to adopt new tools from platforms they already trust and use every day.
There are two main levers for growth. The first is deeper penetration of the existing customer base through better bundling, price increases and more effective use of Salesforce’s data assets. There is a clear link between annual recurring revenue per customer and the number of cloud products adopted. The strategic aim is to pull customers deeper into the ecosystem, making switching harder and creating more opportunities to sell additional products.
Artificial intelligence is the second lever. Agentforce lets customers build AI agents that analyse data, make decisions and act alongside human workers. Data Cloud helps bring fragmented data together, giving those AI tools a stronger foundation. The latest metrics suggest that momentum is building, with Agentforce and Data Cloud growing rapidly from a small base. But AI revenue is still modest in the context of the group, and investors are waiting to see whether usage turns into faster subscription growth.
Software stocks like Salesforce have been under sustained pressure, driven by fears that AI-native competitors could replicate parts of their services at a lower cost. Salesforce’s scale, integration and customer trust are meaningful advantages, but elements of its pricing and seat-based model are likely to face pressure. That doesn’t mean that Salesforce has no long-term future, as recent market moves might suggest, but it does introduce new risks.
Cost discipline has materially improved cash flow in recent years, supporting buybacks, the recently introduced dividend and selective acquisitions – none of which are guaranteed.
All in, Salesforce offers a strong product suite and deep ties with its customers. There’s low-hanging upside if software sentiment improves or AI starts to move the growth needle. But this is now a mature business, and even if AI success does come along, that may not be enough to stop growth settling at a lower level.
Environmental, social and governance (ESG) risk
The technology industry is low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Historically, the sector has flown under the radar when it comes to regulatory oversight, but more recently, we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Salesforce’s management of material ESG issues is strong.
Salesforce’s nominating and corporate governance committee periodically reviews the company’s ESG initiatives, and its cybersecurity team conducts regular assessments and operates 24/7 for incident response. The company also conducts annual employee surveys, runs an apprenticeship program. There’s also an audit committee overseeing compliance and ethics, supported by a third-party hotline for anonymous reporting.
Salesforce key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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