By Adam Levine

Salesforce reported mixed fourth-quarter earnings results Wednesday afternoon. Shares fell in after-hours trading.

Adjusted earnings per share were up annually by 21% to $2.78, compared to Wall Street's consensus estimate of $2.61, according to FactSet. Revenue for the quarter reached $9.99 billion, below expectations of $10.04 billion, and up 8% on the year.

That was overshadowed by Salesforce's light guidance for fiscal 2026. Wall Street analysts were looking for sales of $41.37 billion, and the midpoint of the company's guidance fell short of that at $40.70 billion. The company's first-quarter guidance also fell below Wall Street's expectations.

Salesforce stock was down around 2.8% in late trading following the release.

The miss is doubly painful because expectations for Salesforce's earnings are more modest than they were just a few years ago. Salesforce's sales grew annually by more than 20% for 20 straight years through 2022. More recently, growth rates have slowed to high single digits -- 8% this quarter -- and analysts are projecting the same through fiscal 2027.

Salesforce is a maturing software company, which means decelerating growth rates. It also means increasing cash flow and return to shareholders. Salesforce kept 33% of revenue as free cash flow in fiscal 2025, up from 27% the year before. It began share buybacks in the October 2022 quarter and paid its first dividend during the April 2024 quarter.

"I believe the new profile better supports the company's current valuation and the argument for a higher one," Needham analyst Scott Berg told Barron's. "As margins improve further, we tend to see that valuation floor rise."

Salesforce is trying to change these dynamics. It is taking the current moment with artificial intelligence and trying to use it to expand its customer base.

Salesforce has been adding AI features since 2016. Its efforts accelerated with the current AI boom that began with the release of ChatGPT in November 2022.

The latest result of these efforts is Agentforce, automating software that sits atop language models like GPT, DeepSeek, or Llama. Agents can automate a series of tasks from a simple natural language prompt. Many have predicted that 2025 will be the year of these autonomous AI agents, but not much has surfaced yet.

Salesforce makes software for managing and servicing customer relationships, and these agents can automate a lot of these tasks. They also help Salesforce be more widely used in its customers' organizations.

"What's been happening with customers is that as they learn what the technology is capable of, they're coming up with new use cases every single day," Mike Spencer, Salesforce's executive VP of investor relations, told Barron's. "

These automating agents may eventually become a new high-growth business for Salesforce that offsets the slowing of growth in the core business. A challenge is that many companies are also plunging into agents this year, including well-heeled ones like Microsoft and Google. So far, the market is wide open, with many players.

It will take some time, likely years, for these agents to affect revenue growth. For now, analysts continue to see moderate growth for Salesforce.

"While we see excitement in the marketplace for Agentforce, we do not expect this initiative to drive an acceleration in revenue growth this year or even 2026," D.A. Davidson analyst Gil Luria told Barron's. "We believe Salesforce is expending considerable efforts driving adoption of Agentforce, but they may actually be at the expense of the existing business, which could create an offset to any Agentforce benefit."

Write to Adam Levine at adam.levine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 26, 2025 17:29 ET (22:29 GMT)

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