Earnings Views: Vol 1
CRM and OKTA earnings should come as a relief to the market that wants to see more growth and more AI after multiple recent off-cycle tech earnings reports failed to impress a highly critical market.
CRM and OKTA reported Q3 results tonight showing stable top-line growth and substantial GAAP and Non-GAAP profitability improvements.
These companies’ pivots to highlighting GAAP profitability is really a testament to how drastically investors’ priorities change once a company stops being “growth.”
CRM’s progress with Agentforce is another positive sign that, like NOW, enterprises will purchase agentic AI to automate customer service use-cases.
In my prior life as an equity research analyst I basically had two times a year when I could take a vacation: late June, and late December. During almost every other time of the year I could count on there being at least one earnings report coming out per week that would require my attention.
So, on a night like tonight when a slew of companies are reporting results, I would have been up all night digesting earnings reports, updating models, and speaking with CFOs about whatever I was cooking for dinner. I hope Gina or the other analysts on the line weren’t too annoyed with me talking about my tomato sauce recipes.
Let’s dive into two software stories that I think are interesting: Salesforce, and Okta.
What’s in Fred’s Rotation Today
Salesforce Q3 2025 Earnings
When I saw this on Twitter (I refuse to call it X) this evening, I was initially worried that something deeply, deeply wrong had happened at Salesforce.
I think the Salesforce story has been very interesting. Salesforce, one of the largest software companies in the world, has focused on profitability to please a market that had been watching Salesforce struggle to maintain its “growth company” title primarily through fairly regular (but not really appreciated by the market) acquisitions.
Today, Salesforce is operating as a nicely balanced Rule of 40 company - hooray! The market spoke, and Salesforce responded. But wait, now the market is asking:
“…but what’s your AI strategy?”
Salesforce has been given a very interesting dilemma - how does a company hyper focused on balanced growth now innovate across a legacy product portfolio, without spiking costs?
Let’s take a look at the numbers to get a better picture.
CRM 25Q3: Salesforce reported Q3 revenue of $9.44bn (+8% Y/Y), with subscription and support revenue of $8.88bn (+9% Y/Y). Non-GAAP operating margin reached 33.1%, resulting in better than Rule of 40 performance. The company's multi-cloud strategy remains strong, with top 25 deals averaging more than 5 clouds each. Data Cloud continues to be a key growth driver, included in one-third of all deals over $1mn. Notably, 8 of the top 10 deals included both Data Cloud and AI, signaling strong adoption of Salesforce's AI offerings. GAAP operating margin hit 20% for the first time in Salesforce history. Agentforce, Salesforce’s agentic AI offering, went into production late in Q3 and the company signed 200+ deals in one week.
Total RPO and short-term RPO both grew ~10% Y/Y. Calculated current bookings reached $9.34bn, also growing ~10% Y/Y.
Salesforce made $1.2bn in share repurchases and $0.4bn in dividends during Q3. Total capital returns have now exceeded $20bn since the start of the buyback program.
Guidance: For Q4 FY25, Salesforce expects revenue of $9.90bn to $10.10bn (+7-9% Y/Y), current RPO growth of ~9% Y/Y, and non-GAAP EPS of $2.57 to $2.62. For the full FY25, the company raised its revenue guidance to $37.8bn to $38.0bn (+8-9% Y/Y) and non-GAAP operating margin guidance to 32.9% (+240 bps Y/Y). The company also raised its FY25 operating cash flow growth guidance to 24-26% Y/Y .
Earnings Call Highlights
"More than 200 Agentforce deals just in Q3, it doesn't mean anything, because the pipeline is in the thousands or potential transactions that are coming up in future quarters."
“We feel great about the opportunity with Sales Cloud and with Marketing Cloud and with Commerce Cloud and of course, with Data Cloud, which is included in all of our Agentforce deals. And so those 200 deals sort of tip the iceberg when we think about the opportunity that's ahead of us for Agentforce.”
“…as you know, we pride ourselves on being customer zero for all of our products, and Agentforce is no exception. We're excited to share that Agentforce is now live on help.salesforce.com. I hope that you've all gone there and checked it out.”
“Data Cloud also continues to be the foundation for every AI transformation, and it was included in one-third of all of our deals this quarter over $1 million. As you heard from Brian, Data Cloud helps unlock AI with our customers. And that's why eight of our top 10 deals included both Data Cloud and AI, inclusive of Agentforce. This is really the model for all future transactions.”
“Now over the last few years, we've really aggressively invested in integrating all of our apps on a single core platform with shared services for security workflow user interfaces more. We've been rewriting all of our acquisitions into that common area. We're really looking at how do we take all of our applications and all of our acquisitions, everything and delivered into one consistent platform, we call that more core internally inside Salesforce.”
Okta Q3 2025 Earnings
Okta has been an interesting story to follow as it dealt with multiple high-profile data breaches during 2022 and 2023 (and improved its approaches to incident response).
I’ll spend some more time on the data breach topics in the future since I find cybersecurity companies’ responses to data breaches to be illuminating, and I think the resilience of enterprise SaaS fundamentals to even the most negative headlines a vote of confidence in the lawyers who draw up subscription contracts.
OKTA 25Q3: Okta reported Q3 revenue of $665 million, up 14% year-over-year. Subscription revenue grew 14% Y/Y to $651 million. Non-GAAP operating income was $138 million, representing a 20.7% margin. Free cash flow was $154 million, or 23.1% of revenue. The company added 150 net new customers in the quarter, bringing the total to 19,450. Customers with >$100K ACV grew 8% Y/Y to 4,705.
While TTM dollar-based net retention has fallen to 108% as of Q3 from 111% in 24Q4 and 120% in 23Q4, Okta has focused on what matters as growth slows: profitability and cash flows. Okta’s ~6pt Y/Y expansion in Non-GAAP operating margin brings it closer to Rule of 40 performance, and its swing to GAAP profitability in Q3 is a nice indicator that the shift to profitability is real and not Non-GAAP accounting magic.
Guidance: For Q4 FY2025, Okta expects revenue of $667-669 million (+10-11% Y/Y), current RPO of $2.130 - $2.135bn (+9% Y/Y), and a non-GAAP operating margin of 23%. For the full year FY2025, the company raised guidance and now expects revenue of $2.595-2.597 billion (+15% Y/Y), a non-GAAP operating margin of 22%, and a FCF margin of 25%.
Okta Earnings Call Highlights
"Our view on the macro environment is that it remains consistent with what we've experienced for the past few quarters. Organizations are scrutinizing budgets and rationalizing their software spend, resulting in lower assumptions for seats in our workforce identity business and MAUs in our customer identity business."
"Our relentless focus on innovation has been resonating with our customers as approximately 15% of Q3 bookings were from new products. Okta Identity Governance continues to represent approximately one third of the contract value when sold in a workforce deal."
“We are no longer incorporating additional conservatism into our outlook related to the potential impacts from last year's security incident.”
“The public sector also continues to be an area of strength. In fact, half of the top ten deals that I just mentioned were in the US federal vertical. We've made great progress with our presence in the public sector and believe we have a tremendous amount of runway ahead of us.”
Next up, after this comment, I’m going to have to kick the tires on the entire AI trade.
