Episode Details

Salesforce (CRM) Q2 FY2027 — Shares rose 22.6% to $252.05 the next session - the best day of the whole twelve-month tape - opening 11.9% higher on an opening print that was also the session low, then added another 1.6% on Friday to close at $256.00. Reported earnings per share grew 119% and GAAP operating profit grew nothing: $2,331M against $2,332M a year earlier, on revenue up 10.8%. The difference is $2,613M of gains on strategic investments, $2.7bn of it an unrealised markup on one privately held holding, Anthropic, that Salesforce did not sell. THE CALL: HOLD (3/5, MODERATE) — base-case value ~$260 vs ~$256 today. KEY METRICS: - Revenue $11,345M, +10.8% YoY; subscription and support $10,820M, +11.7% - GAAP operating profit $2,331M vs $2,332M a year ago - flat to the dollar - GAAP operating margin 20.5%, down from 22.8%; gross margin 76.7% from 78.1% - Reported EPS $4.29 vs $1.96; adjusted EPS $5.90 vs $2.91 - Gains on strategic investments $2,613M vs $6M in the year-ago quarter - Of that, $2.7bn relates to one holding, Anthropic, named in the 10-Q - It added $2.43 to reported EPS and $2.53 to adjusted EPS - the company’s own figures - Ex the mark, reported EPS is $1.86 against $1.96 a year ago - it fell 5.1% - Only $179M of strategic investments were sold all quarter; nothing else was realised - $11,169M of the $11,324M portfolio is carried under the measurement alternative - Six-month EPS rose $3.12; the company attributes $2.92 to the mark, $0.57 to buybacks - Salesforce raised $31.0bn of debt in March at coupons of 4.24% to 6.70% - Interest expense $473M vs $67M - a $406M step, about $1.9bn annualised - $25bn accelerated buyback took 103M shares at an average of $198.34 - Diluted shares 821M vs 962M; book equity $38.4bn from $59.1bn in January - Organic revenue growth 6.4% vs 10.8% reported; Informatica added $456M - cRPO $33.5bn, +14% - the same reported rate as last quarter, 13% to 14% in CC - Guidance: FY27 revenue $46.1-46.4bn, free cash flow growth only 4-5% - Valuation $260 blended - owner cash DCF $226, reported FCF DCF $325, 25x EPS $245 - The price needs owner cash compounding 6.5% a year against 4.5% guided What to watch: GAAP operating profit compounding faster than revenue for two prints, organic revenue growth above 9%, or free cash flow beating the 4-5% guide, would each break our thesis Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.