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Salesforce Faces Margin Slowdown Amid Strong Q3 Results
Salesforce Faces Margin Slowdown Amid Strong Q3 Results
Salesforce reports strong Q3 results but faces concerns over slowing margin growth, highlighting challenges in balancing revenue growth with profitability.
Salesforce Inc. (NYSE:CRM) exceeded expectations with an 8.3 per cent revenue increase in Q3, surpassing analysts’ projections of 7.2 per cent. Subscription sales climbed 9.1 per cent, driven by strong demand for core products such as sales and service cloud solutions. Following the results, the company’s stock surged over 11 per cent, reaching $366.30 in extended trading on Tuesday.
Jefferies raised Salesforce’s price target to $425 from $400 while maintaining its “Buy” rating. However, the brokerage highlighted concerns over slowing margin improvements. Salesforce’s operating margin rose to 33.1 per cent, beating estimates, but the growth rate decelerated to 1.9 percentage points compared to nearly 3 percentage points in previous quarters.
Jefferies noted potential for margin expansion, given that other software peers often achieve margins in the low 40 per cent range.
Recent acquisitions have shown weaker performance, with MuleSoft’s growth slowing to 1 per cent from 13 per cent in the prior quarter. Tableau and Slack also reported reduced growth rates of 5 per cent and 8 per cent, respectively. Despite these setbacks, the company’s newly launched Agentforce platform has shown potential, securing 200 deals in its first week. However, analysts do not anticipate Agentforce having a significant short-term impact on overall growth.
Salesforce shares have gained over 40 per cent since its Dreamforce event earlier this year. Jefferies believes the stock remains undervalued even after the rally, citing its discounted trading value compared to competitors. The brokerage expressed confidence in Salesforce’s ability to expand margins and revenue, despite near-term challenges.
With elevated stock valuations in 2024, investors are cautious about additional investments in high-performing equities like Salesforce.
Tools such as ProPicks AI have helped identify overlooked opportunities in the market, highlighting stocks that delivered significant returns this year. Salesforce’s strong performance places it among the key companies to watch, though investors weigh its slowing margin improvements and acquisition challenges against its growth potential.
