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Salesforce slumps over 20% as guidance falls short of estimates

Published 05/29/2024, 04:17 PM
Updated 05/30/2024, 10:16 AM
© Reuters

Investing.com -- Shares in Salesforce (NYSE:CRM) tumbled by more than 20% in early trading on Thursday after the workplace software group unveiled current-quarter guidance that fell short of analysts' estimates.

The outlook was impacted by weak spending on its business-oriented products and services by inflation-squeezed clients, denting optimism around the California-based company's plan to use generative artificial intelligence to boost returns. Chief Executive Marc Benioff struck a bullish tone on AI, however, saying the nascent technology continues to present a "massive opportunity for our customers to connect with their customers in a whole new way."

For its fiscal second quarter, Salesforce projected that adjusted per-share earnings would be in a range of $1.31 to $1.33 on revenue of between $9.20 billion and $9.25 billion. Wall Street forecasts had seen the figures at $1.47 and $9.34 billion, respectively.

The firm also slashed its expectations for annual subscription and support revenue growth down to "slightly below" 10% versus a year ago. It had previously forecast an increase of 10% in February.

"We continue to see the measured buying behavior similar to what we experienced over the past two years and with the exception of Q4 where we saw stronger bookings, the momentum we saw on Q4 moderated in Q1," said Chief Operating Officer Brian Millham in a post-earnings call.

Millham added that the business has also been hit by "elongated deal cycles, deal compression, and high levels of budget scrutiny."

"[A]t this point there is a real question as to the broader spending backdrop in software and whether [Salesforce]’s updated outlook is at risk," analysts at Evercore ISI said in a note to clients.

Salesforce reported adjusted earnings per share (EPS) of $2.44 on revenue of $9.13 billion in the three months ended on April 30. Analysts polled by Investing.com anticipated EPS of $2.37 and revenue of $9.15 billion.

Looking ahead to its 2025 fiscal year, the company maintained its revenue guidance of $37.7 billion to $38.0 billion and adjusted earnings of $9.86 to $9.94 per share. Salesforce also cut its annual operating margin guidance to 19.9%.

Analysts at Guggenheim Partners argued that investors were "probably wish[ing]" that Salesforce had "pulled the trigger" on its reported pursuit of a takeover of data-software management firm Informatica. Salesforce abandoned the possible deal in April after neither company could agree on terms, Reuters reported.

Yasin Ebrahim contributed to this report.

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