Salesforce (CRM)

CRM software giant Salesforce (NYSE:CRM) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 9.8% year on year to $10.24 billion. The company expects next quarter’s revenue to be around $10.27 billion, close to analysts’ estimates. Its non-GAAP profit of $2.91 per share was 4.7% above analysts’ consensus estimates.

Company Overview

With its cloud-based platform named after its stock ticker symbol CRM (Customer Relationship Management), Salesforce (NYSE:CRM) provides customer relationship management software that helps businesses connect with their customers across sales, service, marketing, and commerce.

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.

Salesforce competes with Microsoft Dynamics 365 (NASDAQ: MSFT), Oracle CRM (NYSE: ORCL), SAP (NYSE: SAP), and HubSpot (NYSE: HUBS), along with numerous specialized CRM providers targeting specific industries or business functions.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Salesforce grew its sales at a 10.4% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, Salesforce reported year-on-year revenue growth of 9.8%, and its $10.24 billion of revenue exceeded Wall Street’s estimates by 1%. Company management is currently guiding for a 8.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.9% over the next 12 months, a slight deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Salesforce’s billings came in at $8.99 billion in Q2, and over the last four quarters, its growth slightly lagged the sector as it averaged 9% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Salesforce is extremely efficient at acquiring new customers, and its CAC payback period checked in at 19.4 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Salesforce, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Salesforce’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 77.6% gross margin over the last year. Said differently, roughly $77.65 was left to spend on selling, marketing, and R&D for every $100 in revenue.

This quarter, Salesforce’s gross profit margin was 78.1%, marking a 1.2 percentage point increase from 76.8% in the same quarter last year. Salesforce’s full-year margin has also been trending up over the past 12 months, increasing by 1.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Salesforce has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 20.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Salesforce’s operating margin rose by 2.1 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Salesforce generated an operating margin profit margin of 22.8%, up 3.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Salesforce has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 31.6% over the last year.

Salesforce’s free cash flow clocked in at $605 million in Q2, equivalent to a 5.9% margin. The company’s cash profitability regressed as it was 2.2 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Salesforce’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 31.6% for the last 12 months will increase to 33.3%, giving it more flexibility for investments, share buybacks, and dividends.

Big corporations like Salesforce are attractive to many investors in times of instability thanks to their fortress balance sheets that buffer pockets of soft demand.

Salesforce is a profitable, well-capitalized company with $15.37 billion of cash and $11.24 billion of debt on its balance sheet. This $4.14 billion net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Salesforce provide full-year EPS guidance that slightly beat analysts’ expectations. On the other hand, its billings missed and its revenue guidance for next quarter was in line with Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 3.6% to $247.14 immediately after reporting.

Updated: November 11, 2025 at 9:01 PM EST

Are you wondering whether to buy Salesforce or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Salesforce isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was a little slower over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its expanding operating margin shows it’s becoming more efficient at building and selling its software. On top of that, its ARR has disappointed and shows the company is having difficulty retaining customers and their spending.

Salesforce’s price-to-sales ratio based on the next 12 months is 5.5x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $332.15 on the company (compared to the current share price of $244.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.