Salesforce.com (CRM) Down 9.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Salesforce.com (CRM). Shares have lost about 9.1% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Salesforce.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. Salesforce Q3 Earnings Miss Estimates, Revenues SurpassSalesforce reported mixed third-quarter fiscal 2025 results, wherein revenues surpassed the Zacks Consensus Estimate but earnings per share (EPS) missed the same. Its non-GAAP EPS of $2.41 fell short of the consensus mark of $2.43. However, the figure increased 14% year over year, driven by higher sales and the benefits of ongoing cost-restructuring initiatives, which include the trimming of the workforce and a reduction in office spaces.This enterprise cloud computing solution provider’s quarterly revenues of $9.41 billion increased 8% year over year and surpassed the consensus mark of $9.34 billion. The top line also improved by 9% on a constant currency basis. CRM has been benefiting from resilient demand for its cloud and business software offerings in an uncertain macroeconomic environment.The third-quarter top-line performance also reflected the benefits of its go-to-market strategy and sustained focus on customer success. The initiatives to integrate generative artificial intelligence (AI) into its offerings also boosted demand for Salesforce’s solutions during the reported quarter.Salesforce Q3 Performance in DetailComing to CRM’s business segments, revenues from Subscription and Support (94% of total revenues) increased 9% year over year to $8.88 billion. However, Professional Services and Other (6% of total sales) revenues decreased by 2.4% to $565 million. Our estimates for Subscription and Support, and Professional Services and Other segments’ revenues were pegged at $8.79 billion and $537 million, respectively.Under the Subscription and Support segment, Sales Cloud revenues grew 11% year over year to $2.12 billion. Revenues from Service Cloud also improved 10% to $2.29 billion. Marketing & Commerce Cloud revenues increased 8% to $1.33 billion. Platform & Other revenues were up 8% to $1.83 billion. The company has renamed the Data sub-segment to the Integration and Analytics division. Revenues from the Integration and Analytics division increased 5% year over year to $1.31 billion.Our estimates for Sales, Service, Market & Commerce, Platform & Other and Integration & Analytics services revenues were pegged at $2.03 billion, $2.24 billion, $1.29 billion, $1.79 billion and $1.45 billion, respectively.Revenues from America (66% of total revenues) grew 6% year over year to $6.22 billion. Sales in the EMEA (24%) increased 11% to $2.23 billion, while the Asia Pacific (10%) region’s revenues rose 16% to $996 million.Salesforce’s non-GAAP gross profit came in at $7.61 billion, up 9.9% year over year. Moreover, the gross margin improved 200 basis points (bps) to 81%. Non-GAAP operating income of $3.12 billion was up 14.9% from the year-ago quarter’s $2.72 billion. Moreover, the non-GAAP operating margin expanded 190 bps to 33.1% due to an improvement in the gross margin and benefits from cost restructuring initiatives, including the trimming of the workforce and a reduction in office spaces.Salesforce’s Balance Sheet & Other DetailsSalesforce exited the fiscal third quarter with cash, cash equivalents and marketable securities of $12.76 billion, down from $12.64 billion at the end of the second quarter. CRM generated an operating cash flow of $1.98 billion and a free cash flow of $1.78 billion in the third quarter. In the first three quarters of fiscal 2025, it generated operating cash flow and free cash flow of $9.12 billion and $8.62 billion, respectively.As of Oct. 31, the current remaining performance obligation reflecting revenues under contract for the next 12 months was $26.4 billion, up 10% on a year-over-year basis. The company bought back shares worth $1.29 billion and paid $382 million in dividends during the third quarter. In the first nine months of fiscal 2025, it bought back shares worth $7.75 billion and paid $1.15 billion in dividend payments.Salesforce’s Guidance UpdateSalesforce provided guidance for the fourth quarter of fiscal 2025. It projects total sales between $9.9 billion and $10.1 billion for the aforementioned quarter, which indicates 7-9% growth from the year-ago level.The company expects a $25 million impact on fourth-quarter revenues from foreign currency exchange rates. Furthermore, CRM anticipates non-GAAP earnings per share in the band of $2.57-$2.62 for the current quarter.For fiscal 2025, Salesforce now expects revenues in the range of $37.8-$38 billion instead of the earlier projection of $37.7-$38 billion.It continues to anticipate foreign currency exchange rates to negatively impact its fiscal 2025 revenues by $100 million. It still anticipates Subscription and Support revenues to increase slightly below 10% on a year-over-year basis and approximately 10% on a constant currency basis.However, Salesforce lowered the fiscal 2025 non-GAAP EPS guidance range to $9.98-$10.03 from $10.03-$10.11 projected previously. The consensus mark for the bottom line currently stands at $10.09 per share. Non-GAAP operating margin is now projected to be approximately 32.9%, up from the previous guidance of 32.8%. CRM also raised the operating cash flow growth rate guidance to 24-26% from 23-25% projected earlier.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in estimates review.VGM ScoresCurrently, Salesforce.com has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Salesforce.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.Just Released: Zacks Top 10 Stocks for 2024Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. 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