Salesforce Downgraded to A as Acquisition Debt and Buybacks Rise
Key Facts
S&P Global Ratings lowered Salesforce’s credit rating to A from A, citing a more aggressive capital allocation policy that includes debt-funded shareholder returns and large acquisitions. A report by Investing.com on the agency said the $25 billion share repurchase program, along with acquisition deals, pushed pro forma net debt to EBITDA above the previous downgrade threshold of 2 times. The decision puts the financing of buybacks and acquisitions at the center of the company’s creditworthiness assessment. The agency maintained a stable outlook, pointing to the role of free operating cash flow in containing leverage. Verified data on Salesforce’s share price movement in the November 6 session was unavailable, while the latest close listed in EL7 data was $222.41 on November 5.
S&P expects management to continue directing capital toward growth investments and buybacks rather than building a cash balance on the balance sheet. The approach is part of the company’s effort to raise revenue from about $44 billion to more than $63 billion by 2030, according to the report. At the same time, the agency said strong free operating cash flow would allow net leverage to remain below 2.5 times. This expectation makes the company’s cash-generation capacity a key factor in balancing growth spending against obligations accumulated through acquisitions and buybacks. S&P also warned that debt-funded buybacks or larger deals could add pressure on the rating.
Figures for the second quarter of fiscal 2027 show growth in revenue and remaining performance obligations, the value of contracts whose revenue has not yet been recognized. Salesforce said on August 26 that quarterly revenue was $11.3 billion, up 11% year over year. Remaining performance obligations rose to $66.3 billion, up 11% year over year, while current obligations increased to $33.5 billion, a rise of 14%. An Investing.com report on S&P also cited a 14% increase in remaining performance obligations in the second quarter. These indicators provide a picture of demand and existing contracts, while the agency remains focused on the effect of financing decisions on debt.
In its artificial intelligence and data businesses, Salesforce said annual recurring revenue for Agentforce and Data 360 approached $3.9 billion in the second quarter, an increase of more than 210% year over year. Chief Executive Mark Benioff said the company was seeing strong demand for its AI and data products, and that their annual recurring revenue was nearing $4 billion. But an Investing.com report on S&P said a material contribution from these products to total revenue was unlikely to emerge during the next two fiscal years. This expected delay puts future revenue growth alongside the cost of financing expansion among the factors the agency is monitoring. S&P also warned that intensifying AI-related competition could add pressure on the rating.
Salesforce raised its fiscal 2027 revenue guidance to a range of $46.1 billion to $46.4 billion, saying the $200 million increase reflected several factors. The disclosed components include $100 million from organic growth and $200 million from the pending acquisitions of Contentful and Fin, offset by a $100 million adverse currency impact. The guidance provides context for the growth plan cited by S&P, but does not change the focus of the rating decision on the effect of debt-funded acquisitions and buybacks on leverage. The agency’s outlook will remain stable as long as free operating cash flow supports net leverage staying below 2.5 times. S&P warned that increased borrowing to fund buybacks or pursue larger deals, or intensifying AI competition, could raise the risk of a downgrade.