Salesforce's cost cutting isn't enough to drive a sustained rally for CRM stock as the software maker faces a "growth purgatory," said an analyst who downgraded the company on Wednesday.
Bernstein analyst Mark Moerdler on Wednesday downgraded shares to underperform.
"The core of our thesis is that growth has been decelerating for years, but the deceleration has been masked by acquisitions," Moerdler said in a note to clients. "With the tailwinds from M&A no longer enough, core markets approaching cloud saturation, competition increasing, and macro issues hitting growth, management is aggressively pivoting to driving margins."
He added: "But the cuts are going to negatively impact efficiency, growth and customer/employee satisfaction."
CRM stock fell 1.7% to close at 144.90 on the stock market today. Shares, however, had climbed 11% thus far in January as of Tuesday's market close.
CRM Stock: Margin Improvement
The software maker on Jan. 4 said it will cut 10% of its workforce and reduce office space as part of a restructuring plan.
Further, activist investor Starboard Value on Oct. 18 disclosed that it has taken a stake in CRM stock. It also aims to help the company improve margins. Before Starboard surfaced, Salesforce had approved a $10 billion buyback.
"Salesforce's growth is slowing and management is implementing large force and cost reductions as they scramble to drive margin improvement," said Moerdler. "These cuts will take time to flow through and we expect will further exacerbate growth deceleration."
Salesforce recently announced co-Chief Executive Bret Taylor will depart on Jan. 31 amid other management changes. Meanwhile, Marc Benioff will remain as the sole CEO of the company.
CRM stock retreated nearly 48% in 2022.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
