With software stocks already struggling, Salesforce reported first-quarter earnings that topped estimates while revenue missed. July-quarter revenue guidance for Salesforce stock came in well below expectations. Shares plunged as investors await a boost from artificial intelligence products.
The enterprise software maker released the April-quarter Salesforce earnings report after the market close on Wednesday. Salesforce's sales growth has slowed despite an acquisition spree that included Slack Technologies and Mulesoft.
Salesforce earnings rose 44% to $2.44 per share from a year earlier on an adjusted basis. Also, the San Francisco-based company said revenue climbed 11% to $9.13 billion.
Analysts had forecast adjusted profit of $2.37 per share and revenue of $9.15 billion.
"Like other applications companies this quarter, a weakening buying environment seen through Q1 was to blame (for the miss)," said Brad Sills, a Bank of America analyst in a report.
CRM Stock: Sales Channel Changes?
Sills added: "It is not unusual for Salesforce to see softness in Q1 from self-inflicted sales organizational changes, which are made to stimulate growth through the remainder of the year. This appears to be a normal reshuffle and not indicative of a larger go to market change that could weigh on execution over multiple quarters. We acknowledge that visibility on an improving software spending environment is limited at this point."
A key financial metric, current remaining performance obligations, known as CRPO bookings, missed views. In Q1, CRPO rose 10% to $26.4 billion vs. estimates for 11.9% growth. CRPO bookings are an aggregate of deferred revenue and order backlog.
"The quarter was disappointing, highlighted by a CRPO miss," said Keith Bachman, analyst at BMO Capital Markets, in a report.
He added: "Salesforce had beat CRPO in the previous five quarters but missed by 1.5% to 2% this quarter. Moreover, while we think management inherently lowered the total revenue guide to the lower end of the range by lowering subscription revenue guidance, this still leaves some risk given the poor execution and buying environment witnessed in Q1, in our view."
Salesforce Stock: Guidance Misses
For the current quarter ending in July, Salesforce projected revenue in the range of $9.2 billion to $9.25 billion vs. estimates of $9.345 billion.
"Weaker bookings were impacted by tougher spending conditions and some disruption from go-to-market changes, but management remains constructive on strategic growth areas and expects a stronger second half," said Derrick Wood, a TD Cowen analyst in a report.
For the full fiscal year, Salesforce now expects adjusted earnings of $9.86 to $9.94 per share, up from its earlier forecast of $9.68 to $9.76.
On the stock market today, Salesforce stock tanked 19.7% to close at 218.01.
Heading into the Salesforce earnings report, expectations were lowered amid Workday's weak guidance issued on May 23. Also, CRM stock traded below its 50-day moving average.
The iShares Expanded Tech-Software Sector ETF, an industry index that includes Microsoft and many big-cap software companies, has climbed 4% this year vs. the S&P 500's 11% gain.
Like many software companies, Salesforce has been slow to monetize AI tools. Analysts do not expect revenue growth related to AI product upgrades to kick in until fiscal 2026.
CRM Stock: Technical Ratings
Salesforce offers access to business software applications based on a subscription model. Its software helps businesses organize and handle sales operations and customer relationships. In addition, the company has expanded into marketing, customer services and e-commerce.
In 2023, activist investors pressured management to improve margins by cutting costs.
CRM stock owns a Relative Strength Rating of 68 out of a best-possible 99, according to IBD Stock Checkup.
In addition, CRM stock has an Accumulation/Distribution Rating of D+. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
