Salesforce (CRM) stock is experiencing a decline on Thursday after the company reported first-quarter earnings on Wednesday, the cloud computing company disappointing on its second-quarter guidance. Salesforce posted its first revenue miss in nearly two decades, compounded by its guidance. RBC Capital Markets Software Equity Analyst Rishi Jaluria joins Catalysts to discuss his outlook on the software sector.
Jaluria notes that Salesforce’s performance showed “this is a tough environment that we’re in,” referring to macro conditions for the software landscape. He highlights that with the revenue miss and disappointing guidance, Salesforce is “skating that line of no longer being a double-digit grower anymore,” causing investor concern and the subsequent stock plunge.
Jaluria observes that as companies focus on generative AI and implementing and investing in an AI strategy, it is taking precedence over its cloud platform. He states, “CIOs are taking a look at their IT budgets and saying, ‘Where can we scrutinize spend, what is truly necessary, where can we reduce costs?'” He later adds, “I think that is leading to a deprioritization of migration from the cloud.”
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Angel Smith
Video Transcript
All right, turning now to sales force, it was a disappointing forecast, sending shares is sinking.
It’s on track for its worst intraday performance that we have seen.
Actually.
Now with it off just around 20% the biggest intraday do drop that we have seen since at least 2004.
Now the company is expecting its lowest quarterly revenue growth on record analysts slashing their price targets on sales forces stock here.
Many citing the possibility that the company could be falling behind in the A I race and exactly how that’s factoring in demand here for software.
So joining us now, one of the analysts who just lowered his target on the stock, we have Rishi Gloria, he is R BC capital markets, software equity analyst, Rhi.
It’s great to talk to you here.
So let’s, I guess just give me your first reaction to this friend.
Clearly, the street is very worried.
We’re looking at every we are looking at a drop of just about 20%.
You lowered your price target.
So what does that tell us just about how tough maybe these coming quarters could be here for sales force.
Yeah, absolutely.
Thanks.
So much for having me look, my snap reaction to the print is, this is a tough environment that we’re in.
Uh, I know there were some green shoots and, and Mark Benioff sounded really bullish off the Q four print.
Uh, but the macro environment for software is just really, really tough right now.
And I think that’s very clear after hubspot after work day, last week and now after sales force last night.
Um you know, when I look at, when I look at the numbers, right, this is probably sales versus first miss and I, I don’t know, 10 years, maybe more than that uh like a true miss uh and their guidance on the best forward looking indicator, which is CRPO is in the single digits.
So they’re, they’re skating that line of no longer being a double digit grower anymore.
And I think that’s really worrying people uh when, when you think about it is why, why are they growing slower than the overall market when you think about what they talked about on the call as well, the, the deal scrutiny environment, uh the kind of longer lead time to actually see a deal come over the finish line as well here.
Uh What is that all signal for where we’re actually seeing more broadly, perhaps a little bit of a period where B to B sales for, for companies could be really stringent or, or, or really scrutinized for, you know, for sake of redundancy there.
Yeah, I think we’re going to be in the side who’s holding pattern for a while.
Uh That’s kind of what all the checks and, and data points that we’re picking up are telling us.
And, and really, I think what happened is over the past, you know, a couple of years and really over the past decade, uh every company was focused on digital transformation migration to the cloud and especially during 2020 2021 probably overbought software.
And now uh Cio S are taking a look at their it budgets and saying, where can we scrutinize fan?
What is truly necessary?
Where can we reduce cost?
You combine that with all the head count reductions that we’re seeing out there, especially in the tech sector.
And I think that all makes sense and then maybe lastly, I will add increasingly, I think there is a crowding out effect when it comes to A I. Um you know, as, as, as I’ve talked about actually on your show many times, I’m a huge believer in A I.
But what I think is happening is Cio S are kind of going all hands on deck when it comes to A I, figuring out their A I strategy, who the right vendors are working, uh you know, to work with getting their data stayed in order.
And I think that is leading to a de prioritization of migration to the cloud de prioritization of expansion I’m not saying it’s cannibalizing budget but that de prioritization is what I think is showing up in, in all the numbers we’ve seen this earning season.
Add Comment