Salesforce 'margins expansion still the main story'

Investing.com -- Phillip Securities downgraded Salesforce (NYSE:CRM) from Buy to Accumulate in a note Friday, citing recent share price performance while maintaining that margin expansion remains the company's primary growth story.

The firm has kept its target price for Salesforce at $305, using a Discounted Cash Flow (DCF) valuation with an unchanged Weighted Average Cost of Capital (WACC) of 7% and a terminal growth rate of 4%.

Salesforce's first-half FY25 revenue and adjusted profit after tax and minority interest (PATMI) were in line with expectations, achieving 49% and 50% of Phillip Securities' full-year forecasts, respectively.

The firm explained that in the second quarter of FY25, adjusted PATMI saw a year-over-year increase of 19%, driven by higher operating leverage.

For the upcoming third quarter, Salesforce anticipates revenue growth of 7% year-over-year to $9.3 billion, fueled by increased subscription sales for its key offerings such as Sales Cloud, Service Cloud, and MuleSoft.

Salesforce has also reaffirmed its full-year FY25 revenue guidance of $37.9 billion, representing a 9% year-over-year increase. The company has slightly raised its adjusted operating margin outlook to 32.8%, up from the previous 32.5% guidance, reflecting ongoing improvements in operational efficiency.

Despite the downgrade, Phillip Securities remains positive on Salesforce's long-term prospects. "Catalysts for Salesforce include ongoing margin expansion, robust free cash flows, and resilient demand for its core offerings as enterprises look to form a 360-degree view of their customer data to provide better customer experience," wrote Phillips.

These factors are seen as crucial for enterprises aiming to enhance customer experiences through a comprehensive 360-degree view of their customer data.