A global enterprise applications gorilla, Salesforce (CRM:NYSE) has spent 2024 (and 2023) trying to rebuild profit margins after activist investor StarboardValue started kicking up a stink. Net profit margins had sunk to low single digits during the pandemic, which might be understandable, but why were they not recovering, was StarboardValue’s reasonable question.

It seems to have done the trick, with net margins staging a recovery to the mid-teens as management attacked a bloated cost base, and they ran at 15.3% in the second quarter of fiscal 2025 (which ends 31 January 2025) from what have been stable gross margins in the mid-70s in percentage terms.

It means third-quarter terms numbers on 3 December 2024 will be closely watched and investors will be wondering how high can net margins go without crimping top line growth, with the firm seemingly favourably placed in the AI ecosystem?

Finding the right balance here will be crucial for a share price which has gained about a third during 2024. Consensus forecasts say margins could go a lot higher, with 26% net profit margins largely being forecast for fiscal 2026, based on Stockopedia data.

Salesforce reported second quarter earnings, revenue and operating margin which topped consensus estimates in August, although revenue guidance was a little soft. At its DreamForce annual user conference, Salesforce touted AgentForce, its new autonomous AI agent for business customers. More software companies are pivoting to AI agents, so an important contributor to the wider group may emerge here.

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