Today's significant drop in Salesforce's share price.
Today's significant drop in Salesforce's share price.
Salesforce's (CRM -0.42%) shares plummeted today following the software giant's underwhelming first-quarter performance and subpar forecasts. The stock ended the trading day with a significant drop of 19.7%.
Salesforce Falls Short
Revenue for the quarter saw a 11% increase, but it fell short of the anticipated $9.15 billion mark. Subscription and support revenue increased by 12% to hit $8.59 billion, while remaining performance obligations, representing the backlog, spiked by 10% to reach $26.4 billion.
On the profit side, the company continued to reap benefits from recent cost reductions, adapting to the slower-paced cloud software market. According to General Accepted Accounting Principals (GAAP), its operating margin enhanced by a mammoth 1,370 basis points to 18.7%, and it soared to 32.1% on an adjusted basis, improving from 27.6% in the corresponding previous-year quarter.
On an adjusted basis, earnings per share skyrocketed from $1.69 to $2.44, marginally exceeding the estimated $2.37.
Co-CEO Marc Benioff highlighted the potential of artificial intelligence (AI), stating, "We're at the birth of a colossal opportunity for our clients to link with their clients in an entirely novel manner via AI."
Future Perspectives for Salesforce
The appetite for AI services appears to be curtailing the growth in the traditional cloud software sector, as other cloud software companies have also reported decelerated growth recently.
Looking ahead to the second quarter, Salesforce forecasted a revenue growth of 7% to 8%, estimated between $9.2 billion and $9.25 billion, which fell short of the anticipated $9.34 billion. The company also revised its full-year guidance for subscription and support revenue growth to slightly below 10%, and it lowered its full-year GAAP operating margin guidance to 19.9%.
The company expects full-year revenue to grow between 8% and 9%, estimated at $37.7 billion to $38 billion, which is in line with the consensus at $37.98 billion.
Despite the reduced guidance and the foreseen weak second-quarter revenue, the unsettling developments understandably rattled investors. Salesforce's valuation has dropped significantly from pandemic peak levels, but the company still needs to meet investor expectations, failing to do so in the first quarter.
Investors might be discouraged from further investing in Salesforce due to its subpar forecasts, as the company expects a lower revenue growth for the second quarter compared to expectations. The decrease in projected subscription and support revenue growth, along with lower GAAP operating margin guidance, may also discourage finance-focused investors.