Salesforce shares fall on worst day since March 2020 after ‘fade’ quarter

The stock’s $30.33 drop dropped the Dow Jones Industrial Average
DJIA,
-0.71%

price around 200 points, while the Dow fell 91 points, or 0.3%, in afternoon trading.

While Salesforce beat expectations with headline numbers in its most recent quarter, the company disappointed with its fiscal Q4 forecast.

Bernstein analyst Mark Moerdler wrote: “Overall, it wasn’t the quarter investors were hoping for and while guidance could be quite cautious in the coming quarter, especially on margins, expectations do. remains strong after analysis day,” said Bernstein analyst Mark Moerdler, who has a market performance rating and $295 price target on the stock. . Overall, he called Salesforce’s most recent quarter “dull.”

One key issue that came up in Salesforce’s report was the company’s profit performance, as Salesforce posted a 19.8% operating margin in its most recent quarter. While that number was higher than expected, Moerdler said it looks “low given the savings the company has accrued from not having to travel during the pandemic and streamlining costs.” (e.g. real estate) last year”.

Needham analyst Scott Berg, who rates holdings, called the margin results “mildly disappointing compared to the recent >20% performance”.

The most recent quarter was the first that included a quarter of results from Salesforce’s acquisition of Slack, and Bernstein’s Moerdler expects the company to make another major acquisition soon, perhaps within the fiscal year. main 2023.

“Comment this quarter from management suggests it could take several quarters to integrate acquisitions, and we believe this will raise questions about whether a major acquisition will happen sooner. many believe it will launch on investment day or not,” he wrote. “We believe the company will need to make increasingly large acquisitions to drive growth, and the sustained margin improvement will not be as robust as many had hoped.”

Of course, major acquisitions carry their own risks, and Salesforce admitted during its earnings call that the company has been “favorably” with MuleSoft, it was bought in 2018 in a deal that gave MuleSoft an enterprise value of $6.5 billion.

“When a business is growing as rapidly as MuleSoft, you can face challenges of scale, and we experienced some of those challenges this quarter,” said CFO Amy Weaver. in the call.

Monness, Crespi, Hardt & Co analyst Brian White. described the call as having a “mixed” tone coming up at Slack but having some difficulty with MuleSoft.

“Although Salesforce tried to put on a happy face about last night’s results, we feel less excited than on previous calls and we believe it would be wise for the company not to change. his guide at Investment Day in late September,” he wrote.

See more about Salesforce Investor Day

Salesforce also announced late Tuesday that Bret Taylor, formerly the company’s president and chief executive officer, would take on the role of co-CEO, but analyst Monness White was uncertain about that. this move.

“We believe it is prudent to walk cautiously in our new role as we question the sustainability of the split CEO structure,” he wrote in a note to clients. White has a buy rating and a $328 price target on the stock.

Analysts that include Salesforce are generally a bullish group, with 42 of 49 analysts tracked by FactSet sporting a buy-equivalent rating on the stock. Among that crowd, Salesforce found defenders after its report.

“Going back, we believe [stock’s] RBC Capital Markets analyst Rishi Jaluria writes. “We continue to prefer CRM as a core SaaS [software-as-a-service] holds, leads the market in key software areas, positioned to underpin IT spending and multiple growth drivers. ”

Jaluria rates the stock as overweight with a $325 target.

Shares of Salesforce have fallen 5.1% over the past three months as the Dow fell 2.6%.