When it comes to leaders in the cloud computing industry, the first names that may come to mind are giants like amazon, microsoft, and google. However, in the niche application area of customer relationship management (CRM) within cloud computing, all these giants must step aside; there is only one market leader, and that is salesforce.

According to an IDC report, in 2023, salesforce held a 21.7% share of the CRM market, ranking first for 11 consecutive years. In the top five of the industry, the other four combined do not surpass it.

On December 3, salesforce will release its latest financial report. Each time the company publishes its performance, it may also signify a good trade or investment opportunity. Before that, investors need to understand how to interpret its results.

So, how should the performance of salesforce, a leader in a niche market, be viewed? We can focus on three points: revenue growth, profitability, and cash flow along with shareholder return.

1. Revenue Growth

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

Despite the plethora of products, its revenue model is quite similar, mainly generating income 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 a leader in the CRM niche, salesforce's performance growth is naturally not lacking. Before the fiscal year 2022, salesforce's annual revenue growth was consistently over 20%, undeniably a high-growth company.

However, looking at it by quarter, starting from the third quarter of the 2023 fiscal year, salesforce's performance growth began to drop below 20%, and the latest revenue growth in Q2 of the 2025 fiscal year is less than 10%, marking a new low in many years.

So, regarding the expectations for salesforce's future performance and revenue growth, we can mainly observe it from three perspectives.

First, looking at the logic behind its revenue growth, salesforce's revenue primarily comes from subscriptions for its CRM business's saas services, which are mainly paid on a monthly or annual basis. The growth of revenue from software subscription services relies on two factors: the increase in the number of customers and the push from price increases. To evaluate the number of customers, one needs to consider the churn rate of existing customers and the situation of new customer acquisition.

Salesforce did not disclose customer numbers and service pricing in its performance report, but it did mention customer churn. A lower churn rate represents higher customer stickiness. Salesforce's customer churn rate in Q2 of the 2025 fiscal year was about 8%, consistent with most previous periods. We can observe whether this churn rate can remain stable; if it increases, it may not be favorable for revenue growth.

At the same time, we can observe another indicator, which is the amount of remaining performance obligations, that is, the amount that has been contracted with customers but not yet executed or recognized as revenue.

We see that Salesforce's remaining performance obligations in Q2 of the 2025 fiscal year were about 53.5 billion USD, with a year-on-year growth of about 14.8%. We can continue to observe changes in this indicator.

Finally, we also need to closely observe the revenue guidance provided by Salesforce's management for future fiscal quarters. In the Q1 2025 fiscal year report, management provided revenue guidance for Q3 of 2025 fiscal year at about 9.31-9.36 billion USD, and the revenue guidance for the entire fiscal year at about -38 billion USD, representing a year-on-year growth of 8%-9%, slightly higher than analyst expectations. This is also an important reason for the stock price opening higher after the financial report was released.

Profitability. Apart from observing the performance growth of eli lilly and co, we can also focus on the improvement of its profitability. As a pharmaceutical giant with annual revenue in the hundreds of billions of dollars, expecting continuous explosive revenue growth may not be very realistic. However, if eli lilly and co's profitability continues to improve, thereby increasing the level of net income, it is also an important support for its valuation level.

After the slowdown in revenue growth, salesforce has shifted its focus to improving profitability, which involves so-called "cost reduction and efficiency enhancement." Salesforce's actions of laying off 10% of its workforce and reducing office space in fiscal year 2024 are essentially aimed at enhancing the company's profit potential.

Before fiscal year 2022, salesforce's operating margin rarely exceeded 10%, and in most fiscal years, it was even below 5%. However, this situation saw a significant improvement starting from fiscal year 2023, with salesforce's operating margin rising from 0.3% in Q1 of fiscal year 2023 to 19.1% in Q2 of fiscal year 2025, and its adjusted operating income, excluding stock-based incentives and other expenses, even reaching 33.7%. Its operating profit has also increased from less than 100 million to approximately 1.9 billion dollars.

Generally speaking, for a company to significantly improve its profitability, it must either have an excellent gross margin or effectively control its expense ratio. According to salesforce's financial data, it has achieved both.

In terms of gross margin, salesforce's figure rose from 72.4% in Q1 of fiscal year 2023 to 76.8% in Q2 of fiscal year 2025, an increase of 4.4 percentage points within less than two years.

From the perspective of expense control, salesforce has been more effective: its sales expense ratio decreased from 45.5% in Q1 of fiscal year 2023 to 34.6%, while its management expense ratio fell from 8.9% to 7.6%, and its R&D expense ratio dropped from 17.8% to 14.5%. Cumulatively, the three expenses dropped from 72.1% to 56.7%, achieving a reduction of 15.9 percentage points.

With the increase in gross margin levels and a significant reduction in expense ratios, the enhancement of salesforce's profitability has come naturally. Looking ahead to future performance, it will be important to continue observing whether salesforce's profitability can maintain an upward trend until it stabilizes at a relatively high profit margin level. After all, when revenue growth falters, it can only rely on profit growth to make up for it.

3. Cash Flow and Shareholder Returns

For many years, salesforce's net income has been quite unstable, yet its free cash flow has been very robust and is in a state of rapid growth in most years. For example, since fiscal year 2012, salesforce's cumulative net income has been approximately 10.6 billion dollars, but its cumulative free cash flow has reached 39 billion dollars, nearly four times the net income during the same period, and it has grown every year, with free cash flow nearing 10 billion in fiscal year 2024.

Abundant cash flow also enables salesforce to provide returns to shareholders. This is a common practice among many companies experiencing growth stagnation. In the U.S. stock market, many companies, after hitting a growth bottleneck, find that even if they invest their earnings to boost growth, they may still fail to accelerate their growth objectives, and therefore may consider increasing shareholder returns by distributing profits back to shareholders. The main ways to return to shareholders include dividends and buybacks.

Dividends are the most direct way to return to shareholders, while buybacks can enhance the company’s net asset return and earnings per share, as well as inject additional liquidity into the market, making it a win-win situation that is very popular among shareholders. The method adopted by salesforce is primarily buybacks.

Starting from Q3 of the 2023 fiscal year, salesforce began a continuous share buyback program, with a cumulative buyback amount of approximately $18.09 billion over eight quarters, slightly below the cumulative free cash flow for the same period. In the performance report for Q4 of the 2024 fiscal year, salesforce announced a new buyback plan totaling as much as $10 billion.

At the same time, in the fiscal Q1 of 2025, the company issued its first-ever dividend, with a cash dividend of $0.4 per share. Although the amount is small, corresponding to a dividend yield of less than 1%, it still marks a good start.

Having reached this point, you may have a new understanding of how to read salesforce's performance. It is worth mentioning that for many star companies, each performance announcement may represent a rare trading opportunity for different types of investors.

For example, if an investor reads the past performance and combines it with the latest developments and feels that a company's latest performance will release some positive signals and be bullish for the short-term stock price, the investor may consider buying the underlying stock or buying call options.

On the other hand, if an investor believes that a company's latest performance will not be optimistic and will put pressure on the short-term stock price, the investor may consider short selling through margin trading or buying put options.

Of course, if an investor finds that the direction of a company's performance is unclear, but the stock price may experience significant fluctuations after the performance announcement, the investor may consider leveraging the volatility of its stock price and implement a straddle strategy by buying both call and put options to seize potential opportunities.

In conclusion,

For salesforce's performance, we can focus on three key points: revenue growth, improvement in profitability, and cash flow and shareholder returns.

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

For salesforce's profitability, we can focus on the continuous improvement of its gross margin, optimization of expense ratios, and whether future profit margins can remain stable at a high level.

Concerning salesforce's cash flow and shareholder returns, we can monitor whether its free cash flow can maintain a continuous growth trend, as well as the execution of its buyback plan and the sustainability of dividends.

Each time the company releases its performance, it may bring potential trading opportunities. Investors can consider suitable trading instruments based on their individual risk tolerance.