Salesforce Shares Plunge by Most Since 2008 After Weak Outlook

(Bloomberg) -- Salesforce Inc. shares dropped the most in almost two decades after projecting the slowest quarterly sales growth in its history, renewing concerns that the company will be left behind in the artificial intelligence boom. Most Read from BloombergWorld’s Largest Nuclear Plant Sits Idle While Energy Needs SoarSouth Africa Election Results With 29% Voting Districts In‘Not Gonna Be Pretty:’ Covid-Era Homebuyers Face Huge Rate JumpInsurers Sink as UnitedHealth Sees ‘Disturbance’ in Med Read More...

(Bloomberg) — Salesforce Inc. shares dropped the most in almost two decades after projecting the slowest quarterly sales growth in its history, renewing concerns that the company will be left behind in the artificial intelligence boom.

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Revenue will rise as much as 8% to $9.25 billion in the period ending in July, the San Francisco-based company said Wednesday in a statement. That would be the first quarter of single-digit sales growth for Salesforce in its almost two decades as a publicly traded company. The stock fell 20% to $218.01 at the close Thursday in New York, the biggest single-day decline since July 2004.

Analysts had, on average, estimated $9.35 billion in revenue, according to data compiled by Bloomberg. Salesforce said profit, excluding some items, will be about $2.35 a share, also falling below expectations.

Read More: Salesforce Plunges as Outlook Raises Broad Concerns: Street Wrap

The outlook is heightening investors’ fears over Salesforce’s sliding sales growth in the past year as the company has turned its attention to bolstering profit. Management has touted the potential for artificial intelligence-oriented software and features to boost revenue. The company has also increased buybacks and initiated a dividend in an attempt to keep Wall Street happy.

The stock had gained just 3.2% this year through Wednesday’s close. Many software companies have lagged behind others in the technology sector as the AI craze has disproportionately benefited the stocks of hardware and chip firms including Nvidia Corp. and Dell Technologies Inc. Salesforce’s outlook weighed on the performance of the software sector on Thursday, with Oracle Corp., ServiceNow Inc., SAP SE and others also declining. C3.ai Inc. rallied on a stronger-than-expected sales outlook.

“I would question if a lot of the focus by CIOs on AI is coming at the expense of expansions at Salesforce,” said Rishi Jaluria, an analyst at RBC Capital Markets, in an interview on Bloomberg Television.

Chief Executive Officer Marc Benioff highlighted the recent emphasis on profit and the long-term potential of artificial intelligence as positive for the company. “We’re incredibly well positioned to help companies realize the promise of AI over the next decade,” Benioff said in the statement. Most analysts don’t expect generative AI features within Salesforce applications to boost revenue until 2025 or 2026.

Salesforce’s Data Cloud, which organizes information for analysis and artificial intelligence, is a major focus for executives and investors. The business unit containing Data Cloud, MuleSoft, and Tableau increased 24% to $1.4 billion. Analysts, on average, expected $1.36 billion.

Deal Strategy

Salesforce recently considered buying Informatica Inc., a maker of data-organization software, underscoring its investment in the product category, before talks fizzled. While some investors oppose any large acquisition, particularly after Salesforce bought Slack for $27 billion in 2021, “inorganic is part of our strategy — it always will be,” said Executive Vice President Mike Spencer, who declined to comment on the Informatica reports.

Benioff, speaking on a conference call after the results, said if the company looks “at a large scale acquisition, we’re going to make sure that it is not dilutive to our customers, that it’s accretive, that it has the right metrics, and we are also going to be quick to walk away from things that we are not totally confident in.”

In the fiscal first quarter ending April 30, revenue increased 11% to $9.13 billion. Profit, excluding some items, was $2.44 per share. Analysts, on average, estimated profit of $2.38 a share on revenue of $9.15 billion.

Current remaining performance obligation, a measure of contracted sales, increased 10% to $26.4 billion, below estimates. Customers were more cautious in the quarter than they had been in the preceding one — with smaller purchases and a longer wait before signing new deals, Chief Operating Officer Brian Millham said during the call. “It’s similar to what we felt in the first half of last year.”

As corporations allocate more of their budgets toward generative AI-oriented hardware and software, it’s likely to come at the expense of traditional giants like Salesforce, said Anurag Rana, an analyst at Bloomberg Intelligence.

Recent results by Workday Inc. and UiPath Inc., showed similar pessimism. For software companies, “the malaise is broad, not Salesforce-specific, and we don’t see evidence of a 2H recovery,” wrote Karl Keirstead, an analyst at UBS, after the results.

–With assistance from Ryan Vlastelica and Subrat Patnaik.

(Updates with closing share price in the second paragraph.)

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