Sequoia Time (CRM.US) Earnings Report Surpasses Expectations but Stock Price Plummets; Mild Sales Guidance Fuels Concerns Over AI Era Competition

Salesforce (CRM.US) reported better-than-expected quarterly earnings but saw its stock plunge significantly after hours on Wednesday due to concerns that its outlook for sales growth in the new fiscal year failed to impress investors. Market worries are growing that, in the AI era, this traditional software giant may lose its competitive edge against emerging rivals.

Flat Annual Guidance, Rising AI Competition Concerns

According to the statement released, Salesforce expects fiscal year revenue around $46 billion by January 2027. While this forecast is roughly in line with analyst expectations, it failed to excite the market. After the earnings release, the stock dropped over 5% in after-hours trading.

Looking at specific financial data, for the quarter ending January 31, Salesforce reported revenue of $11.2 billion, up 12% year-over-year, slightly above the market expectation of $11.18 billion, marking its fastest growth in two years. Adjusted earnings per share were $3.81, well above the expected $3.04.

Meanwhile, the remaining performance obligations (CRPO), which measure the contract value expected to be recognized over the next year, reached $35.1 billion, higher than the market forecast of $34.53 billion.

This growth was partly driven by the recent acquisition of data software company Informatica, which contributed $399 million in sales. Excluding currency effects, the company’s two core business lines—sales and customer service software—grew 8% and 7%, respectively, slightly below Wall Street expectations.

As a leader in customer relationship management software, Salesforce has become a typical example of Wall Street’s anxiety over how AI will disrupt existing software providers. Over the past 12 months, the stock has fallen about 37%, as investors worry that AI technology will lower industry entry barriers, making it easier for competitors to develop similar products and weaken Salesforce’s pricing power.

To address the challenges and opportunities brought by AI, Salesforce is heavily betting on its AI platform, Agentforce. This tool can perform sales development, customer service, and other tasks without human supervision. The company disclosed that the product’s annual recurring revenue exceeded $800 million in the fourth quarter, up from $500 million in the previous quarter.

However, analysts note that amid current concerns that AI could disrupt traditional SaaS businesses, Salesforce needs to demonstrate how it is translating early AI advantages into broader enterprise applications. “Salesforce must show the market how customers are moving AI agents from pilot projects to large-scale production,” said Rebecca Wettemann, CEO of industry analyst firm Valoir.

Raising 2030 Goals and Launching $50 Billion Buyback

Despite market concerns, Salesforce remains optimistic about its short-term outlook. The company expects first-quarter revenue between $11.03 billion and $11.08 billion, with adjusted EPS of $3.11 to $3.13, both above analyst expectations. It also projects full-year revenue growth of 10% to 11%, with organic growth expected to accelerate in the second half.

Additionally, facing a stock price that has declined about 28% so far this year, Salesforce announced a new $50 billion share repurchase plan and increased quarterly dividends to $0.44 per share. The company stated these measures “strengthen our commitment to creating significant value for shareholders.” CEO Marc Benioff explicitly said during the analyst call that the buyback was because “the current price is very low.” The company also disclosed that its investment in AI startup Anthropic yielded $811 million this quarter, with additional investments made, now holding about 1% of the company.

Benioff emphasized that the company is steadily progressing toward its goal of $63 billion in annual revenue by fiscal 2030, a figure higher than the previous target of $60 billion and surpassing current Wall Street estimates of about $59.07 billion. He added that AI agents are one of the key drivers of growth.

Morgan Stanley analysts also maintained a “Buy” rating on Salesforce, noting that discussions with partners indicate that its AI business is still in the early stages of deployment.