Salesforce spent a record $27.1 billion on stock buybacks in its first quarter, betting on itself while the stock traded near a 52-week low. Its second-quarter earnings beat, followed by a sharp share-price rally, appears to have validated that bet.
Salesforce's aggressive share-repurchase program is paying off after a rough stretch for the stock. The company spent a record $27.1 billion buying back shares in the first quarter and kept repurchasing and retiring shares in the second quarter, even as some investors worried its customer relationship management business could be disrupted by artificial intelligence.
A buyback bet made near the bottom
Salesforce's board authorized a $50 billion buyback program alongside the company's fourth-quarter report in February. The stock market had pressured the shares for much of the past year under the "SaaS apocalypse" narrative, as investors bet that artificial intelligence would erode software companies' businesses.
Salesforce's shares hit a 52-week low of roughly $146 in June and now trade at roughly $246. Despite the depressed valuation, the company kept buying back stock throughout the first half of the year.
Second-quarter results appear to vindicate the strategy
Salesforce's August-reported second-quarter results beat expectations on both lines. Non-GAAP earnings per share came in at $5.90, crushing the average analyst estimate of $3.27, while sales of $11.35 billion also topped forecasts by roughly $30 million.
An increase in the value of Salesforce's stake in Anthropic heavily powered the earnings beat. Free cash flow also rose 81% year over year to $1.1 billion, reflecting both sales growth and improved operational efficiency. The company did not disclose a dollar figure for its second-quarter buybacks, but it reduced its net share count by nearly 50 million even after accounting for stock-based compensation.
Following the report, Salesforce stock rocketed 40% higher in August's trading. That rally means Salesforce had been repurchasing shares through the first half of the year at prices well below where the stock trades now, boosting earnings per share while the shares were cheap.
Source: The Motley Fool
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