Salesforce: Q1 Results and Updated Valuation
Salesforce Q1 FY2026 earnings results
Salesforce reported Q1 earnings yesterday, delivering solid results that beat expectations and came with a full-year raised outlook. A day earlier, the company announced its $8 billion acquisition of Informatica, doubling down on AI, with Agentforce and Data Cloud at the center.
The stock initially jumped 5% after hours. But today, shares are down nearly 6%, as analysts responded with caution and skepticism.
Let’s break down the earnings results, as well as the Informatica acquisition and what it means for Salesforce going forward.
Financial Results
Salesforce reported Q1 revenue of $9.83 billion, up 8% year-over-year, driven in part by surprisingly strong growth in small, medium, and mid-market segments. The leap year last year reduced reported growth by one percentage point.
The company raised full-year revenue guidance to $41-41.3 billion, implying 8-9% growth, up $400 million from prior guidance. For Q2, Salesforce guides for revenue of $10.11-10.16 billion, also reflecting 8-9% year-over-year growth.
Operating income reached $1.94 billion, up 14% year-over-year. The operating margin was 19.8%, and Salesforce still expects a full-year operating margin of 21.6%, which implies the remaining quarters have even stronger margins. Net income, however, was flat year-over-year at $1.54 billion, a result of higher income taxes and a net loss on strategic investments as opposed to a net gain last year. These are quite irrelevant fluctuations.
Operating cash flow was $6.5 billion, with free cash flow at $6.3 billion, both increasing 4% year-over-year. Stock-based compensation reached $814 million, up from $750 million a year ago. Growth in cash flow was poor compared to operating income growth, a result of flat net income growth.
Finally, current remaining performance obligations (cRPO) reached $29.6 billion, up 11%, reflecting very strong growth and a solid near-term outlook.
Acquisition of Informatica
Salesforce announced its $8 billion acquisition of Informatica a day before announcing results. The deal is being financed through a mix of cash and new debt, with no share dilution. The deal will not impact Salesforce’s share buyback or dividend programs, and the acquisition is expected to close early FY2027.
Why Informatica?
From what I’ve read, Informatica’s core platform—the Intelligent Data Management Cloud (IDMC)—helps businesses manage data across different systems, including cloud apps like Salesforce and on-premise platforms. The company helps enterprises clean, organize, and mobilize their data.
The acquisition is aimed at strengthening Salesforce’s Data Cloud and Agentforce products, with Benioff Saying:
“When you look at these companies that are doing it [Agentforce] right, they have got their data together. And that is what is really the key, this ability to unify or harmonize or activate all the data across the entire enterprise … Informatica, combined with Salesforce's Data Cloud, combined with Tableau, combined with other key assets that we're going to bring to bear, this is what is creating this incredible data business.”
CEO Marc Benioff emphasized that the acquisition was a long time coming: “We probably spent the last 20 years discussing how to bring the companies together”. He called it “a great price for a great company.” With 2024 revenue of $1.64 billion, the deal implies a P/S of ~5x, and a price-to-operating income of ~63x, though profitability is low due to heavy stock-based compensation.
While on a profit-basis, the deal looks expensive, it’s expected to be accretive to non-GAAP EPS, operating margin, and free cash flow by year 2 post-close. Salesforce has a strong track record of integrating acquisitions effectively.
A bit more about Agentforce on the backdrop of the acquisition: Salesforce’s Data Cloud + Agentforce ARR reached over $1 billion, up 120% year-over-year. Agentforce already has 8,000 customers, including 4,000 paying, despite being launched just six months ago.
Chief Revenue Officer Miguel Milano added that Agentforce is never sold alone: the average Agentforce deal includes four other Salesforce clouds.
When asked when Agentforce and the Data Cloud might become more material growth drivers, Benioff responded that they want to commit to margin and cash flow discipline, and rather than promise an inflection, he pointed to existing momentum across the business.