The News: Salesforce, Inc. announced its financial results for the first quarter of fiscal year 2025, that increased year-over-year (YoY), but fell short of the analyst consensus estimate. The company reported Q1 fiscal year (FY) revenue of $9.13 billion, up 11% year-over-year, but fell short of the LSEG analyst consensus estimate of $9.17 billion. As a result, Salesforce shares dropped by 20% on the news, marking the stock’s worst day since 2004, when the stock fell 27%.
Read the complete earnings release at Salesforce’s web site.
Salesforce $9.13B Q1 FY 2025 Revenue Narrowly Misses Estimates
Analyst Take: Salesforce reported its Q1 FY 2025 earnings on May 29, which included a slight miss on revenue. However, the company’s strong product lineup, which is being infused with generative and predictive AI features that are embedded within the platform, and accessed via its copilot assistants, are likely to drive additional customer acquisitions and revenue growth as customers ramp up usage across a variety of products, including its Sales, Marketing, Support, and Service Cloud offerings to deliver a unified customer experience.
By the Numbers
- Revenue: Salesforce reported $9.13 billion in revenue for Q1 FY2025, an 11% increase year-over-year from $8.25 billion in Q1 FY2024.
- EPS: Q1 FY 2025 non-GAAP diluted net income per share was $2.44, compared with $1.69 per share the same period a year ago.
- Subscription Revenue: $8.59 billion in Q1 FY 2025, up 12% YoY from $7.64 billion in Q1 FY 2024.
- Non-GAAP Net Income: Non-GAAP net income in Q1 FY 2025 was $2.41 billion, up from $1.67 billion in Q1 FY 2024.
- Operating Margin: Non-GAAP operating margin was 32.1%, reflecting strong operational execution and cost management, up from 27.6% in Q1 FY2024.
- cRPO: $26.4 billion, as of April 30, 2024, up 10% year-over-year.
- Segment Performance:
- Sales Cloud: Revenue was $1.99 billion, up from $1.81 billion a year ago
- Service Cloud: Revenue was $2.18 billion, up from $1.96 billion a year ago
- Platform and Other: Revenue was $1.72 billion, up from $1.57 billion a year ago
- Marketing and Commerce Cloud: Revenue was $1.28 billion, up from $1.17 billion a year ago.
One of the quarter’s most significant highlights is Salesforce’s continued emphasis on artificial intelligence (AI) and data integration. In his strategic vision relayed on the earnings call with analysts, CEO Marc Benioff highlighted AI’s transformative power in reshaping enterprises, leveraging Salesforce’s vast data resources to drive this change.
The company’s Data Cloud, which now handles over 250 petabytes of customer data, is central to this strategy. Data Cloud enables companies to unify their data, providing a single source of truth that powers AI insights across the Customer 360 CRM platform. This capability is expected to drive significant customer value by enhancing personalization and operational efficiency.
Integrating AI into Salesforce’s offerings is both a future aspiration and a present reality. Salesforce is embedding Einstein AI functionality via its Copilots into many of its core products, including Marketing Cloud, Sales Cloud, and Service Cloud, which the company says has already generated substantial productivity gains for its customers, and the incorporation of these features likely will start contributing to revenue within the next few quarters.
The attractiveness of these AI capabilities is evident, with more than 1,000 Data Cloud customers added for the second consecutive quarter and substantial increases in data processing and activations. This momentum in AI adoption emphasizes Salesforce’s leadership in the AI-driven digital transformation space and its potential to unlock new revenue streams.
Salesforce’s strategic investments and partnerships announced in the quarter further support its growth prospects. The formation of the Zero Copy Partner Network with major players such as Amazon, Databricks, Google, IBM, Microsoft, and Snowflake allows for seamless data federation, enhancing the utility and reach of Salesforce’s Data Cloud. It solidifies Salesforce’s position in the data integration market, paves the way for advanced AI applications, and feeds more data into Salesforce’s Einstein 1 platform.
Leveraging live data without duplication is a significant competitive advantage that can drive future growth. Real-world success stories from the quarter, such as those of Air India, Saks, and CrowdStrike, vividly demonstrate the tangible benefits of Salesforce’s AI and data capabilities. Air India’s use of Data Cloud to unify various data systems and enhance customer service, Saks’ AI-driven personalized customer experiences, and CrowdStrike’s comprehensive use of Salesforce’s clouds to align sales and marketing efforts, all underscore Salesforce’s effectiveness in driving digital transformation for its clients.
Looking ahead, Salesforce’s strategic focus on AI and data integration and significant customer wins position the company for long-term and sustained growth. In addition, the company’s current remaining performance obligation (cRPO) figure of $26.4 billion, as of April 30, 2024, is up 10% year-over-year, reflecting a strong revenue pipeline.
The company’s ability to navigate economic challenges while continuing to innovate and deliver value to customers is a testament to its strong business model. With ongoing investments in AI and the completion of strategic partnerships such as Salesforce signing a definitive agreement to acquire Spiff, the company is well prepared to seize emerging opportunities and maintain its enterprise software market leadership.
Customer Data and Metadata: The New “Gold” for Salesforce
Salesforce noted that multi-cloud deals were a highlight for the company during the quarter, with six of its top 10 deals including six or more cloud editions. Furthermore, 25% of the company’s deals of more than $1 million in value during Q1 FY 2025 included its Data Cloud, which underpins the company’s data and AI strategy.
Salesforce’s Data Cloud is the fastest-growing organic product in Salesforce’s portfolio, providing a robust infrastructure to handle data at scale. It supports real-time data ingestion and processing, which is essential for the dynamic and responsive AI applications businesses increasingly rely on. Maintaining a single, secure source of truth across the entire Customer 360 platform ensures that AI models are fed with high-quality, relevant data, significantly improving their predictive accuracy and utility.
Looking Ahead
Salesforce expects Q2 FY 2025 adjusted earnings per share of $2.34 to $2.36 on $9.2 billion to $9.25 billion in revenue, which falls short of the consensus projection of $2.40 in adjusted earnings per share on $9.37 billion in revenue. However, the company is maintaining FY25 revenue guidance of $37.7 billion to $38 billion, reflecting year-over-year growth of 8% to 9%.
The moderated outlook for the next quarter is reflective of the general industry headwinds, brought on by several quarters of high interest rates, the uncertainty around the U.S. elections, and an industry-wide trend of organizations taking a closer look at spending on enterprise applications.
That said, we believe that the growing incorporation of generative and predictive AI across the entire Salesforce platform and related products (such as Tableau) will eventually drive more revenue. This is based on Salesforce’s generative AI strategy, which one executive described as being akin to a freemium model, where a limited amount of generative AI usage is included in the base offering, with a threshold for incurring additional charges. Essentially, Salesforce is banking on the benefits of generative AI as being addictive, driving users to increase their utilization of and spending on the technology, though it likely will take time for heavy usage to ramp up and drive additional revenue.
Further, Salesforce’s focus on industry-specific solutions and ongoing investments in AI and data integration positions the company for sustained growth. The company’s ability to deliver personalized, AI-driven experiences and comprehensive customer views through its integrated platform will be vital to maintaining its market leadership.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
