Salesforce investors want faster growth, advances in AI revenue

During the 2020 Pandemic Fuel Growth Day, there was a moment Salesforce Beyond the top Oracle Market capitalization. Mark Benioff finally defeated his mentor, Larry Ellison.

That moment has been gone for a long time.

Salesforce stock price fell 25% this year. The worst performance in large technology and the second softest reduction in Dow, UnitedHealth. Meanwhile, Oracle jumps 34%, surpassing most of its peers and well above its main indexes.

The two companies, which once even by valuations, are now separated by approximately $400 billion. Oracle is worth $63 billion and Salesforce fell to $239 billion. Ellison is currently ranked second only to Elon Musk on the Bloomberg Billionaire Index, with a net worth of $278 billion. Benioff ranked 318th at $10.4 billion.

Investors want to hear how Benioff plans to straighten the ship when Salesforce reports its quarterly results after Wednesday’s end.

Sales growth is padded in single digits of four quarters, as it considers the saturation challenges in key markets for customer relationship management software. According to LSEG, analysts are expected to continue with analysts ranging from 8.7% to $10.1 billion.

During April, roughly a quarter of Salesforce’s $9.3 billion subscription and support revenue came from products related to its biggest category: customer service. The company charges for the provision of a service cloud based on the number of agents using the software.

With the rapid rise in artificial intelligence, some analysts predict that more inquiries will be processed through automation, pose a risk to Salesforce.

Benioff knows the challenge well. He said in June that AI is already handling about 30% to 50% of the company’s work. This is a major reason why Salesforce reportedly cut 1,000 jobs earlier this year.

As for customers, Salesforce currently sells AgentForce, an AI system that can answer customer support requests. After it became available in October, Agent Force was providing $100 million in annual revenue, Benioff told analysts during a conference call in May.

“Given the size, it’s not as important as moving the needle in this business,” said Michael Turrin, a Wells Fargo analyst who has pending recommendations for Salesforce stocks.

Turrin said customers expect more Agent Force than Service Cloud.

The big difference between Oracle is that it is one of the early beneficiaries of the AI ​​boom. Oracle, known primarily for its database software located within large corporations and government agencies, has crafted the commitment to Openai and Musk’s Xai’s cloud infrastructure.

Agent Force can become a Salesforce window into AI business if it gains traction.

“I think there’s been a lot of complaints about Salesforce’s share performance, so I think it’s the point where investors are trying to figure out if there’s a chance to rebound a bit here,” Turrin said.

Investors also want to see improvements in their current remaining performance obligations in certain currencies, a measure of expected revenue over the next year. In May, manager Robin Washington said he expected that number to be 9% for the August quarter.

“The more metrics are above 10%, the more confident investors are, the more the business can maintain a growth profile of 10% at least the following year,” Turrin said.

Analysts expect revenue growth to increase very slightly in the third quarter, with a consensus estimate of 9% now.

Salesforce declined to comment.

The expansion can come from outside. In May, Salesforce agreed to buy a data management company Informatica $8 billion. This is Salesforce’s biggest contract since it purchased the $27.1 billion Slack in 2021. In the interim, Salesforce had not spent more than $2.5 billion on M&A.

In late 2022, activist investors began moving on after Salesforce, frustrated by Benioff’s high-cost acquisition, the company’s low-performing stocks and its growing workforce. Activists began to get upset by a more favorable combination of sales and profits, and Salesforce responded by increasing margins faster than planned.

The value of the right board, one of the main instigators, has returned even further. In the second quarter, the company that first acquired Salesforce shares in 2022 increased its holdings by 47%, according to filing. In October 2024, Starboard’s Jeff Smith praised Salesforce for increasing profitability, but said he “believes there are so many more.”

Vulcan Value Partners is a Salesforce shareholder who is pleased with the software company’s plans. After acquiring the shares in 2020, the Vulcan added 345,000 shares in the second quarter, increasing its total holdings to $300 million.

“What we’re focusing on is the per share value of the business,” said Stephen Simmons, the company’s portfolio manager. “It’s growing. There’s nothing to say that this company is always going away anytime soon.”

According to LSEG, analysts expect earnings per share to rise to $2.78 from $2.56 in the last quarter.

The Vulcan sold its Oracle shares in 2020 and missed the sudden rally that followed. Simmons said he would buy again if the stock was discounted.

“The weird thing is how things go about coming,” Simmons said. “Benioff has launched Salesforce as the Cloud-Native Enterprise Company, and Larry is about to migrate on-prem customers to the cloud with Oracle.”