Salesforce (CRM) stock takes the chin after quarterly and forecast.
The tech giant led by Marc Benioff saw sales and margins come in ahead of analyst estimates. Salesforce’s data cloud business maintained sales growth of 20% in the first quarter.
But the company only reiterated its sales forecast for the full year, and called for more cautious spending by customers on its earnings call.
This follows a more enthusiastic quarter from Salesforce several months ago in which the company fended off an activist investor attack, slashed costs to improve margins, and touted new AI initiatives.
Shares fell 6% in early trading Thursday. The company’s ticker page was the most active on Yahoo Finance.
“The future signs are better than expected, but challenging,” Guggenheim analyst John DeVucci wrote in a research note.
Wedbush analyst Dan Ives had a different take on a note of his own.
“Overall, despite the stock’s spotty weakness after hours in print, we view Salesforce as one of the more compelling software names to have in this backdrop with Benioff & Co. now on offense rather than on defense.”
Here is Yahoo Finance’s checklist for the Salesforce quarter.
Earnings summary
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Net sales: +11% yoy to $8.25 billion vs. $8.18 billion estimated
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Current remaining performance obligations (CRPO): $24.1 billion versus the estimated $23.86 billion
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Adjusted operating margin: 27.6% vs. 17.6% a year ago and estimates at 25.5%
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Modified diluted EPS: $1.69 vs. last year’s $0.98 and estimates of $1.61
prospects
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Q2 sales: $8.51 billion to $8.53 billion versus the estimated $8.49 billion
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Q2 Adjusted EPS: $1.89 to $1.90 vs $1.70 Estimated
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Full year sales: $34.5 billion to $34.7 billion vs. $34.63 billion estimated (repeated)
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EPS for a full year: $7.41 to $7.43 (previously: $7.12 to $7.14) for an estimate of $7.15
What caught our attention
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The company will hold an “AI Investor Day” on June 12th.
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Chief Financial Officer Amy Weaver described weak sales in the high-tech and financial services sectors on the earnings call.
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Sales in the Americas were up just 10%, due in part to weak demand in the high-tech and financial services sectors.
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Professional services revenue came in at $605 million, up 9% year-over-year, with the rate of growth slowing from 20% to 35% in the past four quarters (as indicated by Guggenheim’s DiFucci).
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Operating cash flow was $4.49 billion, above expectations of $3.6 billion.
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The company repurchased $2.1 billion in shares in the quarter. About $6 billion was repurchased under a new plan Announced in August 2022.
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The term AI “GPT” was mentioned 33 times in the Salesforce earnings call.
Wall Street reacts
Citi Analyst Tyler Radke (booking rating; $230 target price):
“Salesforce earnings were strong, but perhaps below higher expectations. KPIs (cRPO and revenue) were ahead of guidance, but with a much smaller amount of upside (1 point vs. 3-5 beat last quarter) unchanged in earnings for the full year.”
“Q1 saw more headwinds than Q4 with increased attrition and some slowdown in the US (particularly in Slack + Marketing/Commerce),” Radke added. “Margins continued to outperform restructuring tailwinds that contributed to the uptick in Q1, while the full EPS/Operating Cash Flow forecast was raised. We are impressed with the progress Salesforce has made in driving efficiencies and acknowledge that we lost 70%+ off the bottom at 52 weeks.
He continued, “With Salesforce up 68% year-to-date, signs of softer demand and potential moderate margin expansion/stronger investment in the second half, we maintain our Neutral rating.”
Stifel J Parker Lane Analyst (Buy rating; $250 target):
“Salesforce shares traded nearly 6% after the close, even though the company posted a win and increased across earnings and cash flow metrics,” Parker Lane said. “While Q1 revenue came in ahead of consensus and the company delivered a healthy outlook for Q2, the outlook for fiscal ’24 remained unchanged as a result of the uncertain macro environment affecting transactional revenue streams and the professional services business.”
“In addition, management has expressed its belief that we are entering an artificial intelligence ‘super cycle’, which will be the next technology growth cycle after the rapid acceleration of digital transformation projects during COVID,” the analyst added. “We believe Salesforce has demonstrated a strong commitment to developing and integrating its leading AI technologies to date, and we expect more clarity on our monetization path in the coming quarters.”
Jefferies Analyst Brent Thill (Buy; $250 target):
Salesforce delivered robust printing with CRPO [current remaining performance obligations] Growth of 12%, outperforming Street’s 11% due to underlying strength offset by weakness in business transactions (30-50% of bookings), Teal wrote.
He added, “Artificial intelligence was the main focus, and it was mentioned 72 times in a prepared text.” Despite exceeding $77 million in the first quarter, Salesforce maintained 2024 guidance at 10% due to weak professional services. Salesforce raised 2024 guidance to 28% (550 basis points leverage) above estimates. The North Star remains 10 Dollars plus earnings strength in calendar year 2025, which means a $200-$250 stock at 20-25x.”
Wedbush Analyst Dan Ives (Outperform rating; $240 price target):
“Artificial intelligence is the name of the game for Salesforce, and poker chips are on the table,” Ives said. “As AI takes the world by storm, Salesforce is doubling down on AI in terms of offering its products with the goal of integrating AI and generative AI across many domains into its product base. The company launched a vision for AI and plans to revolutionize the software space, creating an intersection between Artificial Intelligence, Data, and Salesforce.”
In addition, Ives continued, the company will also integrate generative AI into Einstein, creating Einstein GPT, as well as across other products in its broad CRM portfolio. Salesforce will be hosting an AI Day in New York City on June 12th that we look forward to attending and seeing more details about the AI vision. For now, Salesforce remains focused on cost management, core innovations, productivity improvements, and profitable growth improvements.”
Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @employee and on linkedin. Tips on the banking crisis? Email [email protected]
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