How Salesforce is seriously investing in itself

Shares of Salesforce (CRM) are moving up as the company reported fourth-quarter earnings, posting adjusted earnings per share of $2.29 versus an expected $2.27. The company did, however, forecast a weak sales growth of only an estimated 8.6% growth. In addition, the company announced it will eventually be issuing dividends to shareholders.

Macquarie Head of AI & Software Research Fred Havemeyer joins Yahoo Finance to discuss Salesforce's earnings and what to expect from the company going forward.

Havemeyer speaks on the shareholder dividend news: "With the addition of a dividend here and the company also consistently returning capital to investors through buybacks, what we're seeing is that we believe Salesforce here is really showing their dedication to deploying their cash flows in ways that are rewarding investors and their confidence in Salesforce. And so, where the company is focusing again on profitability and cash flows, and growing those cash flows nicely, north of 20% year-over-year in 2025, fiscal '25, they see this as an opportunity to return more cash to shareholders."

He continues: "It adds a very nice aspect to this story, that you can follow along for the growth, for the upside from AI, but you're also being rewarded with both more margin, more profitability, more cash flows, and at the end of the day, more cash being returned to investors."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: Salesforce reported an earnings beat and announced its first ever dividend, but forecasted weaker than expected fiscal full-year revenue here. Now, the chief financial officer noted that Salesforce was not factoring in material contribution from AI products, expecting to see it in two or three years. For more on how investors can discern the early beneficiaries of generative AI, let's bring in Fred Havemeyer who is the Macquarie head of US AI software research. Fred, always a pleasure to speak with you, get some time here. First and foremost with Salesforce and how they're going to be able to see this factored in to the financial performance in the future, what should investors expect as to the timeline when that will really pass through to some of the margins that we're seeing thus far?

FRED HAVEMEYER: So with Salesforce, firstly, I think what we saw is that the company is once again committed to delivering margin, delivering profitability, and doing all of the things that we believe are really critical for the story as a profitable growth story, one that is prudent about investments and costs. Now, we're very excited about generative AI, where that's going to go, and how Salesforce can benefit from it. But big picture, we think that the ramp up to material contribution to revenue will take a bit of time and this is consistent across all of our coverage.

We think that, generally, enterprise adoption of generative AI software will begin to take off in 2024, but then ramp further into 2025 and 2026. Our base case here is generally that enterprises are beginning with testing generative AI software. They're not necessarily going to deploy it everywhere at once and let customers and their employees just use it immediately. Rather they want to be careful and take their time on ensuring that generative AI products are both safe, reliable, and responding as one would expect and one normally would get from an employee of their own company. So I think it's extremely exciting, but we're going to be patient about where and when revenues appear from AI in Salesforce's model.

SEANA SMITH: Fred, one of the big headlines out of this print was the fact that the company declared a dividend here following the footsteps of Meta. I'm curious from your perspective, analyst's perspective obviously, what that tells us about the confidence within management about the future financial success of Salesforce and how big of a boost do you see this being in the long run?

FRED HAVEMEYER: So with the addition of dividend here in the company, also consistently returning capital to investors through buybacks, what we're seeing is that we believe Salesforce here is really showing their dedication to deploying their cash flows in ways that are rewarding investors and their confidence in Salesforce. And so where the company is focusing again on profitability, and cash flows, and growing those cash flows nicely north of 20% year over year in 2025, fiscal '25, they see this as an opportunity to return more cash to shareholders. And I think that it adds to a very-- it adds a very nice aspect to this story that you can follow along for the growth, for the upside from AI, but you're also being rewarded with both more margin, more profitability, more cash flows, and at the end of the day more cash being returned to

BRAD SMITH: Investors. you know I want to go further down that line here. Because as we think about where companies and companies like Salesforce, companies like Microsoft, Google are putting their AI products or solutions out into the market and seeing where some of their clients hop on what the generative AI prompt experience can look like that creates an output and ultimately creates these co-pilots that come to be expected within the workforce, who is winning the battle of the copilot right now?

FRED HAVEMEYER: I think it's so early days that it remains an open field. I think in terms of the technology, OpenAI still appears to be in a position where they're serving the best models. Microsoft, we think, is leading the charge with productizing these as copilots and delivering them to enterprises.

But overall, I think what we've also seen recently with how Gemini has been in the news and responding to prompts with outputs that many have begun criticizing recently, I think that it really shows-- the Gemini responses, for example, show how businesses are likely to be very careful with how they're adopting AI because they need to ensure that the output coming out accurately reflects what their businesses are saying, doing, and their data, their positioning, et cetera. So I think that in this testing phase, we're very early days. I think that Microsoft, Salesforce, and the like, but Microsoft especially, is the furthest along here and is winning presently the copilot debate. But nevertheless, it's extremely early days and we think it's an open field for competition.

SEANA SMITH: All right, Fred Havemeyer, Macquarie head of US AI software research, thanks.

FRED HAVEMEYER: Thank you.