Shares of Salesforce took a nosedive by 20% on Thursday morning, marking its worst trading day in nearly two decades. The last time Salesforce had such a rough patch was on July 4, 2004, when the stock plummeted 27% just days after its debut on the stock market. Talk about a fireworks display!
The latest drop followed a disappointing fiscal first-quarter report on Wednesday that missed Wall Street’s revenue estimates for the first time since 2006. Ouch. On top of that, the company provided a less-than-rosy forecast for the future.
Salesforce announced that its revenue for the quarter grew by 11% to $9.13 billion, falling short of the $9.17 billion analysts had hoped for, according to LSEG. It’s like promising a grand feast and serving up a salad.
For the second quarter, Salesforce anticipates adjusted earnings per share of $2.34 to $2.36 on $9.2 billion to $9.25 billion in revenue. Analysts had their fingers crossed for $2.40 in adjusted earnings per share on $9.37 billion in revenue.
Citi analysts commented that broader economic challenges came back with a vengeance in Salesforce’s first quarter. They noted that the software sector as a whole has had a rough time, but Salesforce’s execution issues and changes in its go-to-market strategy added to the woes.
The Citi team lowered their price target for Salesforce stock from $323 to $260. They said, “With slowing growth, lack of de-risked estimates, and more active M&A, we’re comfortable on the sidelines waiting for signs of improvement or more evidence of Data Cloud/GenAI momentum/monetization.” Translation: They’re grabbing some popcorn and waiting for the show to get better.
Meanwhile, other analysts were more upbeat. Goldman Sachs reaffirmed their buy rating on the stock, describing Salesforce as a “high-quality software franchise.” They believe the company just needs to regain investor confidence. They’re optimistic that easing interest rates, the end of the election cycle, and the rise of generative artificial intelligence will be growth boosters.
Goldman Sachs analysts noted that Salesforce is “an under-appreciated Gen-AI winner” and expects significant margin expansion ahead.
Morgan Stanley analysts acknowledged that Salesforce’s latest results could shake investor confidence in its growth. However, they see potential benefits from generative AI, especially next year, and maintain their overweight rating on the stock. They summarized by stating, “Although this quarter was disappointing and likely dampens investor confidence in a near-term growth rebound, the evidence suggests the impacts are more cyclical than secular.” In other words, they’re hoping this is just a phase and not a permanent slump.
