Salesforce published its second-quarter fiscal 2027 report, for the quarter ended 31 July. The headline is earnings per share up 119%.
The line beneath it is an operating profit that did not move.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
What This Company Actually Does
Salesforce sells customer relationship management software on a cloud subscription model - the customer does not buy a licence but pays a monthly fee, and the software runs on Salesforce's servers.
| What sits inside | |
|---|---|
| Sales Cloud and Service Cloud | The historic core - leads, deals and support |
| Slack | Enterprise communication, acquired in 2021 |
| Tableau and MuleSoft | Data visualisation and system integration |
| Data 360 | The data layer that unifies information across systems |
| Agentforce | AI agents that perform tasks inside those systems |
| Informatica | Data management - acquired, and appearing in this report |
And the economic model matters for everything below: subscription revenue is recognised across the contract term, not at signature. So the metric the market actually follows is not the quarter's revenue but cRPO - the value of signed contracts expected to be recognised as revenue over the next twelve months. That is the demand; revenue is only its echo.
The Quarter
| $ millions | The quarter | A year earlier | Change |
|---|---|---|---|
| Revenue | 11,345 | 10,236 | +10.8% |
| of which subscription and support | 10,820 | 9,690 | +11.7% |
| Gross profit | 8,696 | 7,994 | +8.8% |
| Operating profit | 2,331 | 2,332 | -0.04% |
| Financing expenses | -473 | -67 | 7.1 times |
| Net gains on strategic investments | 2,613 | 6 | |
| Pre-tax | 4,552 | 2,406 | +89% |
| Net profit | 3,526 | 1,887 | +87% |
| Diluted earnings per share | $4.29 | $1.96 | +119% |
| Diluted shares | 821 | 962 | -141 million |
Read the two bolded lines against each other.
Revenue rose by $1,109 million. Operating profit fell by one.
That is, all the revenue growth was absorbed by costs, and the operating margin fell from 22.8% to 20.5%. The gross margin fell too - from 78.1% to 76.6%.
And that is precisely the point at which earnings per share stops describing the business.
So Where Did the 119% Come From
From two places, and neither of them is operational.
The first, and the larger: the line "gains on strategic investments, net" recorded $2,613 million, against $6 million a year earlier. This is a revaluation of the portfolio Salesforce holds in other companies - an accounting gain on assets that were not sold, recorded through the income statement.
It is larger than the entire operating profit for the quarter.
And the second: the diluted share count fell from 962 million to 821 million - 141 million fewer shares, a fall of 14.7%. That is the product of a $25 billion accelerated share repurchase, under which 103 million shares were initially delivered to the company.
And here one has to be fair, because there is another side to the argument.
Operating profit under GAAP absorbed two items that are one-off in character:
| $ millions | The quarter | A year earlier | Difference |
|---|---|---|---|
| Restructuring | 94 | 4 | +90 |
| Amortisation of intangibles from acquisitions | 522 | 380 | +142 |
Both stem from acquisitions - chiefly Informatica. Without them operating profit would have grown about 10%, at a pace similar to revenue.
Which is why the non-GAAP operating margin came in at 34.1%, and the company held its full-year guidance at 34.3%.
Anyone reading only GAAP sees a business that stalled. Anyone reading only non-GAAP sees one that carried on. The truth is that both are correct and measure different things: the first includes the price of the acquisitions, the second sets it aside.
And the Figure That Is Easy to Miss: How Much Growth Was Bought
The company states explicitly that Informatica contributed $456 million to the quarter's revenue, $440 million of it in subscriptions.
| Reported | Excluding Informatica | |
|---|---|---|
| Revenue | 11,345 | 10,889 |
| Growth rate | +10.8% | +6.4% |
| Subscription and support | +11.7% | +7.1% |
That is, four percentage points of the growth were bought rather than generated.
And that holds going forward too: third-quarter guidance includes "slightly above 4 points" of Informatica contribution, and full-year guidance "slightly above 3 points".
The Good News, and It Is Real
cRPO stood at $33.5 billion, growth of 14% - both nominally and in constant currency. The expectation was about 13%, and the company leads its release with the word "accelerates".
| cRPO | $33.5 billion, +14% |
| Total remaining performance obligation | $66.3 billion, +11% |
| Operating cash flow | $1.3 billion, +71% |
| Free cash flow | $1.1 billion, +81% |
And cRPO is the hardest metric to flatter. It derives from signed contracts, not from revaluation and not from a share count. When it accelerates, it means customers signed.
And on AI, the company reports:
- Agentforce and Data 360 ARR reached nearly $3.9 billion, growth of over 210%
- Agentforce ARR alone passed $1.5 billion, growth of over 240%
- 3.2 billion agentic work units in the quarter, up 97% quarter over quarter
- Data 360 ingested 104 trillion records, up 355%
One note on the Agentforce figure, and it appears in the release itself.
"Effective Q2 FY27, Agentforce ARR includes our AI offerings, Slackbot and Headless 360."
That is, the definition was widened this quarter. Growth of 240% measures a broader basket than the one measured a year ago - so it is not a like-for-like comparison.
This does not mean the number is not real. It means part of the jump is definition rather than demand - and there is no way to know how much without a breakdown the release does not give.
Guidance - and What the Raise Is Made Of
Salesforce raised full-year revenue guidance to $46.1-46.4 billion, growth of 11% to 12%.
And the release sets out exactly what the $200 million raise consists of:
| Organic growth | $100 million |
| From the pending Contentful and Fin acquisitions | $200 million |
| Currency headwind | -$100 million |
That is, the acquisitions contribute twice what organic growth does - and those two acquisitions have not yet closed. The guidance is conditional on their closing.
And two further lines in the guidance deserve attention:
GAAP operating margin guidance was updated to 20.1%, while the non-GAAP figure was held at 34.3%. And free cash flow growth guidance was maintained at about 4% to 5% - while revenue is expected to grow 11% to 12%.
Cash flow growing at a third of the pace of revenue is a line worth following.
What I Will Check Next Quarter
| cRPO | Whether 14% holds without Contentful and Fin - the company guided that it does |
| Operating profit | Whether it returns to growth after a quarter of zero |
| Organic growth | 6.4% this quarter - where it goes as Informatica enters the comparison base |
| Free cash flow | 4%-5% against revenue of 11%-12% |
| Agentforce detail | Whether a like-for-like comparison is provided |
| October | Final settlement of the $25 billion repurchase programme |
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This report is a good reminder of how far apart "earnings per share" and "how the business did" can travel.
Earnings per share up 119% is an extraordinary headline. But it is made of three things, only one of which involves selling software: a revaluation of an investment portfolio, the retirement of 141 million shares, and an operating profit that stood still.
And what interests me is the gap between the two operating measures. Under GAAP the margin fell to 20.5%; under non-GAAP it is 34.1%. The entire difference is the cost of the acquisitions - intangible amortisation and restructuring. Which raises a real question: when a company acquires continuously - Informatica, and now Contentful and Fin - are those costs genuinely one-off, or have they become a permanent part of the operating model?
I do not have a decisive answer, and I think both sides are reasonable. Whoever treats them as one-off is right in accounting terms. Whoever says a company that acquires every year will bear them every year is right in economic terms.
What does persuade me in this report is cRPO. Fourteen per cent growth in signed contracts, after years of deceleration, is the only number here that cannot be improved by a financial action. Not a revaluation, not a buyback, and not a redefinition - someone has to sign.
And what I hold as the open question is the gap between revenue and cash. The company expects to grow 11% to 12% in revenue and 4% to 5% in free cash flow. In a subscription business, where the money is supposed to arrive up front, a gap like that is not self-evident - and it is the line I will open the next report with.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
