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Shares of Salesforce Inc. (NYSE: CRM) tumbled approximately 16% during after-hours trading following the company’s announcement that its sales growth for the upcoming quarter is projected to decelerate to unprecedented single-digit figures. This development has ignited concerns among investors about Salesforce's ability to remain a pivotal player within the dynamic tech landscape, particularly as the industry pivots towards artificial intelligence.
For the period concluding in July, Salesforce forecasts revenue increases of up to 8%, reaching $9.25 billion. This projection marks the company’s slowest sales growth since it went public nearly two decades ago. By comparison, the consensus among analysts had anticipated revenues to hit $9.35 billion. Moreover, the anticipated earnings, adjusting for specific items, are expected to be around $2.35 per share, slightly trailing the average forecast of $2.40.
Salesforce has been grappling with persistent concerns regarding its declining sales growth trajectory over the past year. The company's strategic shift towards prioritizing profitability has been met with mixed reactions. Despite putting a spotlight on the potential revenue-boosting capabilities of AI-enhanced software, Salesforce has had to implement increased share buybacks and introduce dividends to appease its stakeholders.
Commenting on the current climate, RBC Capital Markets Analyst Rishi Jaluria noted, “I suspect that the heightened focus on AI by many CIOs might be cannibalizing Salesforce's expansion opportunities.” This sentiment reflects broader apprehension about the company's ability to capitalize on AI advancements in a manner that bolsters revenue streams.
Chief Executive Officer Marc Benioff has emphasized the company’s commitment to integrating AI technologies and maintaining profitability. “We’re incredibly well positioned to help companies realize the promise of AI over the next decade,” Benioff remarked, expressing optimism despite the immediate financial hurdles. Notably, most analysts forecast that generative AI features within Salesforce applications will not start contributing significantly to revenue before 2025 or 2026.
In response to the news, Salesforce's share price plummeted to $223.10 in after-hours trading, down from a closing price of $271.62. While the stock has managed a modest 3.2% gain this year, it has lagged behind other tech giants, such as Nvidia Corp. (NASDAQ: NVDA) and Dell Technologies Inc. (NYSE: DELL), which have experienced more pronounced rallies.
Salesforce's Data Cloud, a crucial component of its AI and data analysis portfolio, experienced a 24% increase in revenue, reaching $1.4 billion, slightly ahead of analyst expectations of $1.36 billion. This segment includes notable acquisitions like Mulesoft and Tableau.
In an effort to expand its offerings, Salesforce explored an acquisition of data-organization software company Informatica Inc. Although talks ultimately fell through, Executive Vice President Mike Spencer stressed that acquisitions remain a strategic priority for the company. Benioff added that any potential acquisitions would be thoroughly vetted to ensure they are beneficial and aligned with Salesforce's goals.
Despite the overall sales narrative, the company did report an 11% increase in revenue for its fiscal first quarter ending April 30, totaling $9.13 billion. Profit, excluding certain items, stood at $2.44 per share, surpassing analyst expectations of $2.38 per share. However, the current remaining performance obligation, indicative of contracted sales, rose by 10% to $26.4 billion, falling short of projections, potentially due to slower deal closures and stagnant customer headcount.
Reflecting on customer behavior, Chief Operating Officer Brian Millham noted a greater degree of caution within the market, mirroring a sentiment similar to that observed in the early part of the previous year, with smaller purchase volumes and extended deal finalization timelines.
As Salesforce navigates these choppy waters, its ability to seamlessly integrate AI into its core offerings while maintaining growth will be closely watched by investors and industry analysts alike.
