Salesforce (NYSE:CRM) shares dropped nearly 16% in pre-market trading on Thursday following mixed results for the first quarter of fiscal 2025. While non-GAAP earnings exceeded the Consensus Estimate, revenues fell slightly short.

The customer relationship management software provider also issued weaker sales and earnings guidance for the second quarter, increasing investor caution about its short-term outlook. The dim forecast reflects a potential slowdown in cloud and tech spending amid persistent high interest rates and ongoing inflation.

First Quarter Results

For the first quarter, Salesforce reported non-GAAP earnings of $2.44 per share, up 44% from $1.69 in the same quarter last year, surpassing the Consensus Estimate of $2.38. This growth was driven by higher sales and cost-restructuring initiatives, including workforce reductions and office space cutbacks.

Quarterly revenues increased 11% year over year to $9.13 billion, but fell just short of the  Consensus Estimate of $9.14 billion.

Business Segment Performance

Revenues from the Subscription and Support segment (94% of total revenues) rose 12.3% year over year to $8.59 billion. However, Professional Services and Other segment revenues (6% of total sales) declined 9.4% to $548 million.

Sales Cloud: Revenues grew 10.4% to $2 billion.

Service Cloud: Revenues increased 11.1% to $2.18 billion.

Marketing & Commerce Cloud: Revenues rose 9.6% to $1.28 billion.

Platform & Other: Revenues were up 9.6% to $1.72 billion.

Integration & Analytics (formerly Data): Revenues jumped 24.2% to $1.41 billion.

Geographical Performance

America: Revenues grew 10.6% to $6.06 billion.

EMEA (Europe, Middle East, and Africa): Sales increased 9.9% to $2.15 billion.

Asia Pacific: Revenues soared 13.8% to $926 million.

Financial Metrics

Salesforce’s non-GAAP gross profit reached $7.33 billion, up 13.2% year over year, with a gross margin of 80.2%, a 170 basis point improvement. Non-GAAP operating income increased 28.8% to $2.93 billion, with the operating margin expanding by 450 basis points to 32.1%, driven by improved gross margins and cost restructuring.

Balance Sheet & Cash Flow

Salesforce ended the first quarter with $17.7 billion in cash, cash equivalents, and marketable securities, up from $14.2 billion at the previous quarter’s end. The company generated $6.25 billion in operating cash flow and $6.08 billion in free cash flow. The current remaining performance obligation was $26.4 billion as of April 30, 2024, up 10% year over year.

Salesforce repurchased shares worth $2.13 billion and paid $388 million in dividends during the first quarter.

Guidance Update

For the second quarter of fiscal 2025, Salesforce expects:

Total Sales: Between $9.20 billion and $9.25 billion, indicating 7-8% growth year over year, but below the Consensus Estimate of $9.32 billion.

Non-GAAP Earnings: Between $2.34 and $2.36 per share, below the consensus mark of $2.40.

For fiscal 2025, Salesforce maintains its revenue forecast of $37.7-$38 billion, slightly below the consensus mark of $37.93 billion. The company expects a $100 million negative impact on fiscal 2025 revenues from foreign currency exchange rates. Subscription and Support revenues are now projected to grow slightly below 10% year over year, compared to the previous estimate of 10%.

Salesforce raised its fiscal 2025 non-GAAP earnings guidance to $9.86-$9.94 per share from the prior $9.68-$9.76 per share. The consensus mark stands at $9.71. The non-GAAP operating margin is expected to remain around 32.5%, with operating cash flow projected to increase 21-24% year over year.

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