When it comes to leaders in the cloud computing industry, the first ones you might think of are giants like Amazon, Microsoft, and Google. However, in the sub-application field of Customer Relationship Management (CRM) within cloud computing, these giants have to take a back seat as there is only one market leader, which is Salesforce.

According to an IDC report, in 2023, Salesforce holds a market share of up to 21.7% in the CRM market, ranking first for 11 consecutive years. The other four in the top five industry players combined are no match for it.

On December 3rd, Salesforce will release its latest earnings report. Every time the company announces its performance, it may also signal a good trading or investment opportunity. However, before that, investors need to understand how to interpret its performance.

So, for a market leader like Salesforce in this specialized sector, how should we assess its performance? We can focus on three key points: revenue growth, profitability, and cash flow along with shareholder returns.

1. Revenue growth

Salesforce's core products mainly include Sales Cloud, which assists customers in expanding sales channels, Service Cloud, providing customer communication management services, Marketing and Commerce which helps customers with data analysis, and Platform which helps customers in application development.

Despite having a variety of products, their revenue model is actually quite similar, primarily generating revenue through customer subscriptions. Over 90% of Salesforce's revenue comes from subscriptions and support services.

The cloud computing industry has seen rapid growth in recent years, and as the leader in the CRM subsector, Salesforce's performance growth is naturally impressive. Prior to the 2022 fiscal year, Salesforce's revenue growth rate was consistently above 20%, making it a solid high-growth company.

However, looking at a quarterly basis, starting from the third quarter of the 2023 fiscal year, Salesforce's performance growth rate began to drop to below 20%, and the latest year-on-year revenue growth rate for the Q2 quarter of the 2025 fiscal year is less than 10%, reaching a new low in many years.

So, when it comes to expectations for Salesforce's future revenue growth, we can mainly observe from three perspectives.

Firstly, from the logic of its revenue growth, Salesforce's revenue mainly comes from SaaS subscription services in the CRM business, with subscriptions mainly paid on a monthly or yearly basis. The revenue growth of software subscription services relies on the increase in the number of customers and also on price hikes. In terms of customer numbers, it is necessary to consider customer churn rates and the acquisition of new customers.

Salesforce does not disclose the number of customers and service pricing information in its performance, but it does mention customer churn rates. A lower customer churn rate indicates higher customer retention. Salesforce's customer churn rate for Q2 of the 2025 fiscal year is approximately 8%, consistent with most of the previous times. Going forward, we can observe whether its customer churn rate can continue to remain stable. An increase in this rate may not be favorable for revenue growth.

Additionally, we can observe another indicator, which is the amount of remaining performance obligations, referring to the contracted amount with clients that has not yet been executed or confirmed as revenue.

We see that Salesforce's remaining contractual obligations in Q2 of the 2025 fiscal year are approximately $53.5 billion, an increase of about 14.8% year-on-year. In the future, we can continue to observe the changes in this indicator. You can view it through the following path: Futubull App>Salesforce stock page>Company>Company business data (clicking on the image below will also take you directly there).

Lastly, we also need to focus on Salesforce's management's revenue guidance for the upcoming fiscal quarters. In the Q1 quarterly report of 2025, the management provided a revenue guidance of approximately $9.31-9.36 billion for the Q3 fiscal quarter of 2025, and a revenue guidance of around $37.7-38 billion for the 2025 fiscal year, with a year-on-year growth of 8%-9%, slightly higher than analyst expectations. This is also an important reason for the stock price surge after the earnings report.

2. Profitability

After the slowdown in revenue growth, Salesforce's focus has shifted to improving profitability, that is, carrying out the so-called "cost reduction and efficiency improvement". Salesforce's actions in cutting staff by 10% in the 2024 fiscal year and reducing office space are essentially aimed at enhancing the company's profit potential.

Before the 2022 fiscal year, Salesforce's operating margin basically did not exceed 10%, and even most fiscal years were below 5%. However, this situation began to improve significantly starting from the 2023 fiscal quarter, with Salesforce's operating margin increasing from 0.3% in Q1 of the 2023 fiscal year to 19.1% in Q2 of the 2025 fiscal year, and the adjusted operating profit, excluding stock-based incentives and other expenses, even reaching 33.7%. Its operating profit also increased from less than one billion to about 1.9 billion US dollars.

Generally speaking, for a company to significantly improve its profitability, it either has excellent gross margin performance or good expense control. From Salesforce's financial data, it appears to have both.

Looking at the gross margin, Salesforce increased from 72.4% in Q1 of the 2023 fiscal year to 76.8% in Q2 of the 2025 fiscal year, a 4.4 percentage points increase in less than two years.

In terms of expense control, Salesforce has been even more effective, with its sales expense ratio decreasing from 45.5% in Q1 of the 2023 fiscal year to 34.6%, while the management expense ratio decreased from 8.9% to 7.6% during the same period, and the research and development expense ratio declined from 17.8% to 14.5%. The combined three expense ratio decreased from 72.1% to 56.7%, achieving a 15.9 percentage points reduction.

With the improvement in gross margin levels and significant decrease in expense ratios, Salesforce's profitability improvement has come naturally. We can continue to observe whether Salesforce's profitability can continue to rise in the future until it stabilizes at a relatively high profit margin level. After all, when revenue growth slows down, it can only be compensated by profit growth.

3. Cash flow and shareholder returns

For many years, Salesforce's net profit has been very unstable, but its free cash flow has been very robust, most years experiencing rapid growth. For example, since the 2012 fiscal year, Salesforce's cumulative net profit is about 10.6 billion US dollars, but the cumulative free cash flow is as high as 39 billion US dollars, nearly 4 times the net profit during the same period, and it has grown every year, with free cash flow reaching nearly 10 billion in the 2024 fiscal year.

Adequate cash flow also enables Salesforce to engage in shareholder returns. This is a common practice among many stagnant companies. In the US stock market, many companies, when facing growth constraints, even if they use their profits to increase investments, are unable to achieve accelerated growth targets. They may consider increasing shareholder returns by feeding back profits to shareholders. The main ways to reward shareholders include dividends and buybacks.

Among these, dividends are the most direct way to reward shareholders, while buybacks can increase the company's return on net assets and earnings per share, inject additional liquidity into the market, and can be said to be a win-win situation, very welcomed by shareholders. Salesforce's preferred method is primarily buybacks.

Starting from the third quarter of the 2023 fiscal year, Salesforce began a continuous share buyback program. The cumulative repurchase amount over 8 quarters is approximately $18.09 billion, slightly lower than the cumulative free cash flow for the same period. In the fourth quarter earnings of the 2024 fiscal year, Salesforce announced a new buyback plan, with a total amount reaching as high as $10 billion.

At the first day of the 2025 Q1 quarter, the company declared its inaugural dividend, with a cash dividend of $0.4 per share. Although the amount is small, translating to a dividend yield of less than 1%, it is still considered a good start.

Upon seeing this, you may have a new understanding of how to interpret Salesforce's performance. It is worth noting that for many leading companies, every earnings release could potentially signify a rare trading opportunity for different types of investors.

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Conversely, if investors believe that the latest performance of a certain company will not be optimistic and will bring pressure on the short-term stock price, investors may consider short selling, which can be done by considering margin selling or buying put options.

Of course, if investors think that the bullish and bearish direction of a company's performance is unclear, but the stock price may experience significant fluctuations after the performance release, then investors may consider the straddle strategy of buying call and put options to capture potential opportunities.

Finally, to summarize,

When it comes to salesforce's performance, we can focus on three key points: revenue growth, improvement in profitability, and cash flow and shareholder return.

Regarding salesforce's revenue growth, we can pay attention to its customer churn, remaining performance obligations, and management guidance.

In terms of salesforce's profitability, we can monitor the continuous improvement in its gross margin, optimization of cost rates, and whether the future profit margin level can remain steady at a higher position.

As for salesforce's cash flow and shareholder return, we can observe whether its free cash flow can continue to grow steadily, and the execution of its share buyback plan and the sustainability of dividends.

Every time a company releases its business performance, it may bring potential trading opportunities. Investors can consider suitable trading varieties based on their personal risk tolerance.