Salesforce CRM is set to announce second-quarter fiscal 2025 results on Aug 28. The Zacks Consensus Estimate of $2.35 for the company’s second-quarter non-GAAP EPS indicates a 10.9% year-over-year increase.

While the bottom-line projection might appear to be a positive indicator, the reality is more nuanced, especially when compared to (more than) 35% growth that Salesforce has consistently delivered in the past six quarters.

Slowing Sales Growth: A Critical Issue

Once a beacon of double-digit revenue growth, Salesforce is now grappling with a noticeable slowdown. In the first quarter of fiscal 2025, the company barely managed to scrape into low double-digit growth territory, a far cry from the 20% plus growth that it had regularly posted up until fiscal 2022. This isn’t just a temporary blip; it signals deeper challenges within both Salesforce and the broader market.

The root of this slowdown lies in a combination of factors. Economic uncertainties and geopolitical tensions are making businesses more cautious about their IT spending. Companies are tightening their budgets, delaying large-scale investments and scrutinizing deals more closely. Salesforce has acknowledged that its customers are now taking longer to close deals and opting for smaller, less ambitious projects.

This shift in customer behavior is particularly damaging to Salesforce’s revenue growth. The company’s Professional Services division is also seeing a decline in demand for multi-year transformation deals. In some cases, projects are being delayed or scaled back, further impacting revenue growth.

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Strategic Shift: A Double-Edged Sword

Additionally, Salesforce has shifted its strategy from aggressive expansion to focusing on margin improvement. This shift has led to significant cost-cutting measures, including layoffs, which have temporarily boosted profitability. However, these cuts have come at the expense of critical investments in sales and marketing, which are essential areas for driving future growth.

The strategy has resulted in a noticeable deceleration in Salesforce’s sales growth over recent quarters. According to our model estimates, Salesforce's revenues for the second quarter are expected to increase a mere 7.3% year over year to reach $9.23 billion. Our model projects the Subscription and Support segment to contribute approximately $8.64 billion and the Professional Services division to add $585.8 million.

This slowdown in revenue growth is not just a concern for the top line. It’s likely to have a ripple effect, dragging down Salesforce’s earnings growth as well.