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Salesforce Stock Plunges 20% Amid Revenue Miss

Salesforce shares plummeted by 20%, marking one of the company's worst trading days in nearly two decades
May 31, 2024

Shares of Salesforce experienced a dramatic decline of 20% on Thursday morning, marking the stock's most significant drop in nearly two decades. The last time Salesforce faced a comparable decline was on July 4, 2004, when its shares plummeted 27% shortly after the company's initial public offering.

The sharp decline followed the company's announcement of fiscal first-quarter results on Wednesday, which fell short of Wall Street's revenue expectations for the first time since 2006. Salesforce also provided guidance that was below analysts' predictions.

In the first quarter, Salesforce reported an 11% increase in revenue to $9.13 billion, slightly below the $9.17 billion anticipated by analysts according to LSEG. For the second quarter, Salesforce forecasted adjusted earnings per share (EPS) between $2.34 and $2.36 on revenues ranging from $9.2 billion to $9.25 billion. Analysts had projected an EPS of $2.40 on $9.37 billion in revenue.

Citi analysts attributed the disappointing results to broader macroeconomic challenges that have significantly impacted Salesforce and other software companies. They also pointed to issues in execution and recent changes to Salesforce's go-to-market strategy. As a result, Citi lowered its price target for Salesforce stock from $323 to $260. The analysts noted that they would remain cautious, awaiting signs of growth or further evidence of momentum in areas like Data Cloud and generative AI before adjusting their stance.

While some analysts struck a cautious tone, others maintained a more positive outlook. Goldman Sachs reiterated its buy rating for Salesforce, describing it as a "high-quality software franchise." Goldman Sachs analysts believe that Salesforce can regain investor confidence through easing interest rates, the end of the election cycle, and advancements in generative artificial intelligence. They emphasized Salesforce's potential as a significant player in the Gen-AI space and predicted substantial margin expansion.

Similarly, Morgan Stanley analysts acknowledged the setback in investor confidence due to the recent results but maintained their overweight rating on Salesforce. They highlighted that the issues appear more cyclical than long-term and expressed optimism about the company's future prospects, particularly with the integration of generative AI next year.

Despite the immediate challenges, Salesforce's position in the market and its strategic investments in AI suggest potential for recovery and growth. The next few quarters will be crucial for the company as it navigates these hurdles and seeks to reassure investors of its long-term vision and profitability.

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