Salesforce Stock Plummets After Weak Outlook

Salesforce stock NYSE:CRM

Salesforce Inc. (NYSE:CRM) saw its shares tumble by the most in almost two decades after the company projected the slowest quarterly sales growth in its history, sparking concerns about its position in the artificial intelligence sector.

In a statement released Wednesday, the San Francisco-based company forecasted a revenue increase of up to 8% to $9.25 billion for the period ending in July. This marks the first quarter of single-digit sales growth for Salesforce since its inception as a publicly traded company nearly two decades ago. The stock plummeted by 21% to $215.40, marking the largest intraday decline since July 21, 2004.

According to data compiled by Bloomberg, analysts had anticipated revenue to reach $9.35 billion on average. Salesforce also stated that profit, excluding certain items, would be approximately $2.35 per share, falling short of expectations.

Investor concerns have been exacerbated by Salesforce’s declining sales growth over the past year as the company shifted its focus toward profit enhancement. While management has emphasized the potential of artificial intelligence-driven software and features to drive revenue, Salesforce has also increased its share buybacks and initiated a dividend to appease Wall Street.

Year-to-date, the stock had only gained 3.2% by Wednesday’s close. The performance of many software companies, including Oracle Corp. (NYSE:ORCL), ServiceNow Inc. (NYSE: NOW), and SAP SE (NYSE: SAP), was negatively impacted by Salesforce’s outlook on Thursday. Conversely, Inc. (NYSE:AI) rallied due to a stronger-than-expected sales outlook.

Rishi Jaluria, an analyst at RBC Capital Markets, expressed concerns about whether the increased focus on AI by Chief Information Officers should be more focused on Salesforce’s expansion efforts.

Salesforce CEO Marc Benioff, however, remains optimistic about the company’s long-term prospects, citing the recent emphasis on profit and the potential of artificial intelligence. Despite this, most analysts do not anticipate generative AI features within Salesforce applications to significantly impact revenue until 2025 or 2026.

A significant focus for executives and investors is Salesforce’s Data Cloud, which saw a 24% increase to $1.4 billion in the business unit containing Data Cloud, MuleSoft, and Tableau. This exceeded analysts’ expectations.

Regarding acquisition strategy, Salesforce considered purchasing Informatica Inc., a data-organization software maker, highlighting its commitment to product diversification. Mike Spencer, Executive Vice President at Salesforce, emphasized that while some investors oppose large acquisitions, such moves remain part of the company’s strategy.

During a conference call following the results, Benioff emphasized the importance of ensuring that any large-scale acquisitions align with the company’s objectives and are beneficial to customers.

In the fiscal first quarter ending April 30, Salesforce reported an 11% increase in revenue to $9.13 billion, with profit, excluding certain items, at $2.44 per share. This exceeded analysts’ expectations.

However, the company’s current remaining performance obligation, a measure of contracted sales, increased by only 10% to $26.4 billion, falling short of estimates. Chief Operating Officer Brian Millham noted that customers exhibited more caution in the quarter, with smaller purchases and delayed new deal signings.

Anurag Rana, an analyst at Bloomberg Intelligence, suggested that as corporations allocate more of their budgets towards generative AI-oriented hardware and software, traditional giants like Salesforce may face increased competition. Recent results from Workday Inc. (NASDAQ:WDAY) and UiPath Inc. (NYSE:PATH) have reflected similar sentiments. According to Karl Keirstead, an analyst at UBS, the software sector’s challenges are widespread and not limited to Salesforce, with no evidence of a recovery in the second half of the year.

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