- Salesforce’s stock dropped 18% post-bleak revenue growth forecast, citing high interest rates and AI competition as concerns.
- Analysts worry about sluggish bookings in Q1 and delayed GenAI innovation cycle’s impact on competitiveness.
- AI-focused data cloud segment remains steady, contributing 25% to deals over $1 million.
- CEO Marc Benioff hints at pursuing accretive large deals to reignite growth amidst activist investor pressure.
- Several brokerages lowered price targets post-results, with D.A. Davidson’s $230 being the lowest.
Main AI News:
Salesforce’s stock took a nosedive of approximately 18% on Thursday, following its bleakest quarterly revenue growth projection ever. Concerns loomed large as investors fretted over the impact of soaring interest rates and the rising competition from AI-driven alternatives on the cloud-based software giant’s demand.
Analysts at Morgan Stanley voiced apprehensions, indicating that the sluggish bookings in Q1 and the delayed fruition of the GenAI innovation cycle were escalating into competitive worries, putting Salesforce’s resilience to the test.
In the first quarter, Salesforce’s AI-centric data cloud segment retained its share, contributing to 25% of deals valued above $1 million, a figure unchanged from the preceding quarter. However, the company refrained from divulging additional financial specifics about this sector, despite its anticipated annual recurring revenue nearing $400 million in the previous fiscal year.
Warnings from several brokerage firms hinted at a broader slowdown in software demand extending into April, painting a grim picture for Salesforce and its peers.
Looking ahead, Salesforce’s CEO, Marc Benioff, hinted at a strategic shift towards pursuing sizable deals to reignite growth. However, this strategy would hinge on the deals being both “accretive” and aligning with the company’s performance metrics, as stated during a post-earnings call on Wednesday.
The pressure from activist investors to prioritize profitability, following years of expansive growth driven by major acquisitions like the $27.7 billion Slack takeover in 2021, has left Salesforce navigating a delicate balance between growth and sustainability.
RBC analyst Rishi Jaluria cautioned against the pursuit of large-scale acquisitions in the current climate of decelerating growth, suggesting that such moves might be perceived as attempts to buy growth rather than fostering it organically.
The aftermath of Salesforce’s disappointing forecast led to a flurry of downward revisions in price targets by at least 10 brokerage firms. D.A. Davidson’s price target of $230 emerged as the most conservative among 49 analysts covering the stock, signaling a cautious sentiment prevailing in the market.
Conclusion:
The market’s reaction to Salesforce’s stock plummet reflects concerns over its growth trajectory amid challenges from AI competitors and a shifting landscape. Analyst apprehensions regarding sluggish bookings and delayed innovation cycles indicate a need for strategic reassessment. Salesforce’s pivot towards pursuing sizable deals underscores a potential shift in its growth strategy, albeit amidst cautious investor sentiment and downward revisions in price targets.
