Salesforce Stock Tanks Post Q2 Earnings
August 26 2022 - 7:01AM
Finscreener.org
Shares of customer relationship
management company, Salesforce (NYSE:
CRM) are down over 6% in pre-market trading today.
Salesforce announced its fiscal second quarter of 2023 (ended in
July) results on August 24 after the market closed and reported
revenue of $7.72 billion and adjusted earnings of $1.02 per
share.
Analysts forecast Salesforce to
report revenue of $7.69 billion and adjusted earnings of $1.19 per
share. In the year-ago quarter, the company reported revenue of
$6.34 billion and adjusted earnings of $1.48 per share.
In its press release, Salesforce
Chair and Co-CEO Marc Benioff stated, “We had another strong
quarter, with revenue of $7.7B growing 22% year-over-year and 26%
in constant currency, showing yet again the durability of our
business model.”
So, why is CRM stock price
falling despite beating Wall Street consensus estimates in Q2? In
Q3, Salesforce forecast sales between $7.82 billion and $7.83
billion, compared to consensus estimates of $8.07 billion. Its
adjusted earnings forecast of $1.21 per share was also lower than
estimates of $1.29 per share in Q3.
Further, in fiscal 2023,
Salesforce estimates revenue of $31 billion and earnings of $4.72
per share, lower than consensus revenue and earnings estimates of
$31.73 billion and $4.75 per share, respectively.
Let’s see what impacted
Salesforce revenue in the July quarter.
Salesforce wary about a challenging macro
environment
While Salesforce grew its top
line by 22% year-over-year in Q2, it remains wary of the current
macro environment, which is quite challenging. Benioff explained,
“Sales cycles can get stretched, deals are inspected by higher
levels of management, and all of this we began to start to see in
July……Nearly everyone I’ve talked to is taking a more measured
approach to their business. We expect these trends to continue in
the near term, and we’ve reflected this in our
guidance.”
Salesforce emphasized demand was
slower from small and medium enterprises in regions such as North
America and Europe, across verticals including retail, consumer
goods, communications, and media.
From a product perspective,
commerce and marketing saw pronounced decelerations while sales and
service remained strong. For example, Salesforce’s service
subscription and support revenue totaled $1.83 billion in Q2,
rising 14% year-over-year. Further, revenue from the sales category
increased 15% to $1.7 billion, while its Platform and Other
Category (including Slack) surged 53% higher to $1.48
billion.
In Q2, Salesforce launched new
marketing and commerce tools and completed the acquisition of
Troops.ai, a company that developed a Slack chatbot that sales
employees can use. Salesforce acquired Slack for $28 billion in
2022 and stated it would increase the subscription prices of the
chat platform for the first time since 2014. It expects Slack to
add $1.5 billion in sales this fiscal year.
What next for CRM stock and investors?
Salesforce stock
is currently trading 45% from
all-time highs valuing the company at $170 billion by market cap.
Given Wall Street forecasts, Salesforce is valued at 5.4x forward
sales and 28x forward earnings, which is quite steep.
But Salesforce believes its
shares are undervalued and initiated its first-ever share
repurchase program as it aims to touch $50 billion in annual
revenue by fiscal 2026. Despite the ongoing weakness, Salesforce
also reiterated guidance for an adjusted operating margin of 20.4%
in fiscal 2023.
Analysts tracking CRM stock have
a 12-month average price target of $243, which is 35% above its
current trading price.
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