Salesforce shares fell by 18% Thursday after the company’s lowest-ever forecast for quarterly revenue growth raised concerns that high interest rates, and competing AI offerings, were hampering demand.
If losses continue, the company’s market value could drop by more than $48bn. It also reported that its quarterly revenue was lower than expected for the first quarter since 2006.
Morgan Stanley analysts stated that “weak bookings” in Q1 are further testing investor patience, as GenAI (generative AI) innovation cycle is yet to impact top-line results. This has now become a competitive concern.
Salesforce’s AI data cloud business, which is focused on AI, contributed to 25% (the same as the previous quarter) of deals above $1m during the first quarter. It did not reveal more financial information about the business. In its last fiscal, it had a recurring annual revenue of nearly $400m.
Some brokerages have warned that Salesforce’s predictions also mean software demand has slowed down further in April.
Analysts at Barclays said that the sales environment appeared to have deteriorated from the end March, and became more apparent in April. This could explain why off-cycle names like Workday or Salesforce suffered more than ServiceNow, or Microsoft.
Marc Benioff said that Salesforce would look at large deals if they are “accretive”, and have “the right metrics” in their post-earnings conference call on Wednesday.
Last year, activist investors pressed Salesforce to put profitability first after it had grown its business for years through large deals such as the $27.7bn purchase of Slackin 2021.
Investors would not react well to large deals right now, I think. “Given that growth is slowing, a large acquisition would be seen as buying growth”, said Rishi Jaluria, RBC analyst.
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