Should You Add CRM Stock to Your Portfolio Ahead of Q4 Earnings?

Core Viewpoint - Salesforce is expected to report strong fourth-quarter fiscal 2025 results, driven by digital transformation initiatives and growing demand for AI-enabled cloud solutions [7][8][20] Revenue and Earnings Projections - For the fourth quarter, Salesforce projects total revenues between $9.9 billion and $10.1 billion, with a consensus estimate of $10.04 billion, indicating an 8.1% increase year-over-year [2] - Non-GAAP earnings per share are anticipated to be in the range of $2.57 to $2.62, with a consensus estimate of $2.60, reflecting a 13.5% increase from the previous year [3] Earnings Performance and Trends - Salesforce has beaten the Zacks Consensus Estimate three times in the last four quarters, with an average surprise of 3% [4] - The company currently holds a Zacks Rank 2 but has an Earnings ESP of -1.63%, indicating uncertainty regarding an earnings beat this quarter [5][6] Strategic Initiatives and Market Position - Salesforce's focus on digital transformation and cloud solutions is expected to enhance revenue growth, supported by its strategic acquisitions and expansion into key markets [7][9][10] - The company has made significant acquisitions, including Spiff, Own, and Zoomin, which have diversified its revenue base and enhanced its capabilities [10][18] Product and Service Performance - Revenue estimates for key cloud services include $2.15 billion for Sales, $2.31 billion for Service, $1.9 billion for Platform & Other, $1.36 billion for Marketing & Commerce, and $1.77 billion for Data [11] - Subscription and Support segment revenues are expected to be approximately $9.5 billion, with Professional Services projected at $513 million [11] Profitability and Cost Management - Ongoing cost restructuring initiatives are likely to improve profitability, with a reported non-GAAP operating margin of 33.1% in the third quarter, up 190 basis points [12] Stock Performance and Valuation - Over the past year, Salesforce shares have increased by 8.5%, outperforming the Zacks Computer – Software industry growth of 6.8% [13] - The stock is currently trading at a forward 12-month P/S ratio of 7.33X, which is lower than the industry average of 8.61X, indicating a potential investment opportunity [15] Investment Thesis - Salesforce maintains its leadership in the customer relationship management industry, bolstered by strategic acquisitions and a strong focus on AI initiatives [17][19] - The company is well-positioned to benefit from rising global IT spending, projected to reach $5.61 trillion in 2025, with enterprise software spending expected to grow even faster [20]