Salesforce: Profitability Gains Clouded by Rising Debt Load

Salesforce's stock has traded flat over the past year, underperforming the broader market. However, the company's operational landscape has shifted, with a notable increase in debt financing contributing to 38.1% of its assets, a substantial rise from its 14-year average of 14.8%. This strategic financing is funding a $25 billion accelerated share repurchase program, expected to retire at least 14% of outstanding shares.

Financially, Salesforce demonstrates improved profitability, with operating margins reaching 21.5% compared to a 14-year average of 2.2%. Free cash flow now represents 34.5% of revenue, up from a historical average of 20.2%. This enhanced cash generation may enable the company to manage its increased debt load more comfortably.

Despite these improvements, a key risk to monitor is the pace of cash growth relative to revenue. Salesforce projects fiscal 2027 subscription and support revenue to grow over 12% year-over-year, with operating and free cash flow increasing around 4% to 5%. The divergence between subscription revenue growth and cash flow growth servicing debt warrants attention, particularly as the company integrates recent acquisitions like Informatica, Contentful, and Fin.

### Story Arc / How We Got Here Enterprise AI software stocks, including Palantir Technologies and ServiceNow, saw surges previously on market momentum and strategic alliances. Today's focus on Salesforce's financial structure highlights how increased profitability can be intertwined with rising debt, prompting a closer look at the risk-return profile of established tech players. Prior coverage can be found here: /explore/palantir-rallies-on-pwc-alliance-amid-burry-bear-case-servicenow-climbs.