The results from Salesforce’s Q1 FY26 earnings call have already sparked discussion and debate across the ecosystem. While the results are largely positive, it has left a lot of questions around how Salesforce plans to grow in the future.
Where is Salesforce’s revenue coming from, and does the Mothership want to keep on that track going forward?
Salesforce as a Growth Stock
When Salesforce’s founder and CEO, Marc Benioff, started Salesforce back in 1999, he boldly announced that this event marked “the end of software” – at least as everybody knew it at the time.
“It’s always the end of something and the beginning of something new,” he reflected in a talk with the Financial Times earlier this year. If one thing was to be certain for Salesforce, it was that the cloud company had plans to grow, and grow fast – almost testing the waters for how much Silicon Valley power (and money) they could get behind them.
Its early innovation – delivering enterprise software via the cloud – gave them a significant first-mover advantage. Although Salesforce had their doubters at the beginning, their model was disruptive, reducing the cost of software ownership for businesses, but also introducing recurring subscription revenue, which became a hallmark of the modern tech business.
From its IPO in 2004 to the mid-2010s, Salesforce consistently posted double-digit revenue growth year over year. Investors came to view it as a classic “growth stock” – a company that is considered to have the potential to outperform the overall market over time because of their future potential.
Salesforce’s expansion of its product suite only accelerated this movement further, taking on the likes of MuleSoft, Tableau, and Slack, helping Salesforce branch beyond CRM and into integration, analytics, and collaboration.
Despite growing revenue from just under $100M in 2004 to just under $35B 20 years later, Salesforce rarely posted significant profits during its growth phase. In fact, data shows that Salesforce was experiencing net losses from 2012 to 2017, but this did not cause Salesforce to sink by any means. Investors looked at Salesforce’s future potential, strong market position, and ability to secure enterprise deals, and the persistent pursuit of growth continued.
Were Salesforce Forced to Slow Down?
However, as any product approaches maturity and investors get critical, a slowdown is natural. Activist investors Third Point, ValueAct, Inclusive Capital, Elliot Management, and Starboard Value began pushing for improved margins and operational efficiency, forcing the cloud giant to rethink many of its growth strategies.
This most notably came to a head when Salesforce announced on their May 2024 quarterly earnings call that they had missed their revenue forecast number for the first time since 2006, plummeting their stock by 16%.
This was a notable blow that left investors lacking confidence in Salesforce, especially after mass layoffs had ensued, M&A activity was paused, and Salesforce was facing pressure to move away from the growth stock mentality and even consider selling some of their biggest acquisitions, Tableau and Slack.
Salesforce needed to change, which signalled the end of an impressive but timely growth stock run, and a move into more of a value stock operation. The company began shifting toward more disciplined spending and profitability targets, focusing on delivering value and focusing their money and time on securing something big for the future – AI.
How Did Salesforce’s Growth Strategy Shift?
Not long after ChatGPT was revealed to the world, Salesforce – like many other companies at the time – announced their own generative AI plans and products. AI was spearheaded as the next biggest trend in tech, computing, and more (even being cited as a pillar of the fourth technological revolution), and Salesforce made a plan to use that wave as a platform for their next stage of growth.
While there was a lot of initial excitement about the possibilities of Salesforce’s first AI offering Einstein GPT (which now falls under the umbrella of Agentforce), the offering ultimately fell victim to overpromising and underdelivering. Leaning right into the first wave of generative AI – so when the concept was still fairly fresh to many – many of the capabilities were too generic, limited, or required a lot of setup.
The Rise of Data Cloud and Agentforce
So, the Einstein suite hadn’t met the mark, and Salesforce had to do something different. That’s where both Agentforce and Data Cloud came in – both strong products that bounced off the success of each other, and gave Salesforce the promising results they had been searching for.
Of course, this wasn’t without its own teething issues either. Agentforce has been scrutinized ever since it was released, and Data Cloud underwent a rebrand (formerly Genie and Salesforce CDP) before settling where they are now. However, three years after the announcement of Data Cloud and seven months since the announcement of Agentforce, the results have begun to shine through.
In the latest earnings call, Salesforce announced that its “Data Cloud + AI” suite of tools crossed $1B in ARR, a 120% YoY increase. This has also resulted in the platform now storing 22 trillion records, up 175% from last year – a monumental milestone for the cloud giant. Data Cloud and Agentforce work with consumption-based pricing, so the more data available, the more revenue available.
What Does The Future of Revenue Growth Look Like?
Although Salesforce may have reported on positive earnings and progress last month, for investors, one key problem still remains: the stock remains unstable. On May 29, Salesforce’s stock dropped by 3% after the earnings call – an unfortunate addition to the downgrade the stock received the month prior, with investment bank D.A Davidson attributing this to Salesforce’s “premature” focus on AI and Agentforce.
There have also been concerns around whether Salesforce’s AI growth efforts will amount to anything valuable if the core platform functionality is dismissed or deprioritized. This latest earnings call only put that situation further into question when it was announced that although Sales and Service Cloud still account for nearly $4.4B of quarterly revenue, they are no longer the growth leaders.
With the platform now being cited as increasingly more complicated and too expensive, the pressure on Salesforce has now materialized on two sides: the pressure to keep the AI fresh, innovative, and accessible, but also to ensure that the core functionality is intuitive, responsive, and relevant.
Investing Where It Matters Most
In Salesforce’s Q1 FY26 earnings call, Robin Washington, Salesforce’s CFO, spoke about how the company was now focusing on “responsible capital allocation”.
“We are continuing to invest where it matters most to our businesses and customers while maintaining a clear focus on efficiency and profitable growth to maximize shareholder value,” she said.
“We’re starting FY ’26 strong with a trusted, deeply unified platform, the most technical leadership team in our history, and a solid foundation to accelerate efficiency and growth.”
Marc Benioff’s sentiments also reflect a more responsible approach to the company’s future growth, without curtailing too much ambition that is needed by such a high-profile CEO.
“Obviously, we want to have growth,” he said. “We also want to have good, solid, balanced execution as well.”
He spoke about how the company was going to maintain their margin framework, cash flow framework, and their “very disciplined” approach to M&A.
“Before I go into my pitch on growth, I would really want to make sure that everybody heard what I just said that I’m committed to all of those things, but I’m also deeply committed to growth,” he stressed.
Marc explained that several forms of “transformation” were behind Salesforce, including margin, cash flow, buyback, dividend, and even acquisition.
He also explained that the core clouds continue to be “a cornerstone of [Salesforce’s] portfolio, despite the results, with Sales Cloud, Service Cloud, and the core platform included in 9 out of 10 wins, and more than half of the company’s top 10 deals including six or more clouds.
The standout insight, however, is that Salesforce’s next growth movement will be founded on distribution, fuelled by the powerful offerings and promises of its AI suite. This is something that the company says it has already observed in SMBs, and particular geographical regions such as Japan.
This explains the uptick in hiring account executives and sales teams – up to 2,000 new salespeople to be specific.
Final Thoughts
With this kind of dedication to distributing a product and a vision, Salesforce has made one thing very clear: AI continues to be the strategic growth accelerator that the company will depend on, backed by a continual commitment to nurture the core clouds and platform that customers have come to know and love.
It is very likely that Salesforce is now out of its immense growth phase, instead opting to focus on balanced, purposeful growth to benefit both investors and the stability of the stock. This is not to say that partners and customers will not benefit too – they will if product plans are accessible and useful, but while the state of the economy is uncertain and AI continues to throw up new challenges, growth that is scalable and achievable is king.
