Salesforce's $25 Billion Bet on Share Buybacks Raises Growth Concerns

Salesforce reported strong fiscal second-quarter earnings, exceeding investor expectations in terms of revenue growth and profitability. The company's $11.3 billion in revenue for the quarter marked an 11% year-over-year increase, with subscription and support revenue rising by 12%. Adjusted earnings per share soared to $5.90, a 103% jump from last year.

Management also raised full-year revenue guidance to between $46.1 billion and $46.4 billion, predicting subscription and support revenue growth slightly above 12%. However, a notable point is that most of the expected revenue increase comes from acquisitions rather than organic improvement.

The company announced an accelerated share repurchase program worth $25 billion, aiming to retire at least 14% of its outstanding shares. This move has raised questions about whether Salesforce is tying up too much capital in buybacks when it could be used for strategic investments or growth initiatives. As the company expands into new areas such as data and AI, some investors wonder if this approach will hinder future growth.

Salesforce's financial position remains strong, with $11.4 billion in cash and equivalents, and a 81% increase in free cash flow to $1.1 billion. However, the company predicts only modest cash flow growth of around 4-5% for fiscal 2027, despite revenue growth projections of 11-12%. This disparity has led some analysts to question whether Salesforce's business can sustain its ambitious expansion plans.