Salesforce Inc. is experiencing a significant decline in its stock value after cutting its subscription revenue outlook and highlighting increased customer scrutiny on spending. This development has led investors to reconsider the company’s growth potential and the broader health of the software sector.
Significant Stock Drop
Salesforce’s stock fell by 15.7% in premarket trading on Thursday. If these losses continue, it would mark the largest single-day percentage drop since March 16, 2020, when the stock fell by 15.9%.
Analyst Reactions and Forecasts
Bernstein analyst Mark Moerdler maintained an underperform rating on Salesforce while slightly increasing his price target to $234 from $231. Moerdler expressed skepticism about Salesforce’s core initiatives and its potential to monetize the AI opportunity, a sentiment previously shared by the market.
“After this quarter’s results, with the stock down 16% in the aftermarket, we think the weakness in the business is becoming increasingly visible,” Moerdler said. He also noted that investors need to reset their expectations for the company’s growth, as low- to mid-teens growth on a percentage basis no longer appears achievable.
Revenue Outlook Adjustments
Salesforce maintained its total revenue outlook for the fiscal year, projecting 8% to 9% growth. However, the company reduced its subscription and support revenue growth forecast to just below 10%, down from the previous estimate of around 10%.
UBS analyst Karl Keirstead commented that the report would likely weigh heavily on software sentiment, confirming fears of a weakened spending backdrop. He pointed out that the malaise in the software sector is broad and not specific to Salesforce, and he doesn’t foresee a recovery in the second half of the fiscal year. Keirstead maintained a neutral rating on the shares but lowered his price target from $310 to $250.
Concerns About Subscription Revenue
Guggenheim’s John DiFucci echoed similar concerns, noting the risk in Salesforce’s subscription revenue guidance. He observed that the guidance implies a significant increase in new annual contract value (ACV) growth in the second half of fiscal 2025, which may be overly optimistic. DiFucci also maintained a neutral rating on the stock.
A More Optimistic Outlook
Evercore ISI’s Kirk Materne offered a more optimistic perspective, suggesting that Salesforce’s unchanged total revenue guidance reflects the company’s confidence in its pipeline and favorable pricing conditions in the second half of the year. While acknowledging the softness in the latest quarter, Materne believes Salesforce is transitioning into a margin expansion and free cash flow growth story. He has an outperform rating and a $300 price target on Salesforce shares.
Market Implications
The mixed reactions from analysts highlight the uncertainty surrounding Salesforce’s future performance. While some analysts remain cautious, others see potential for growth and margin expansion. The broader software sector is also under scrutiny as investors assess the impact of reduced spending and economic challenges.
As Salesforce navigates these challenges, its ability to adapt and leverage its strengths will be crucial in regaining investor confidence and achieving sustainable growth.
General Content Disclaimer
This article provides an original summary and analysis of Salesforce’s recent financial performance and stock market reactions. The information aims to offer a comprehensive overview and does not endorse any specific viewpoints or positions. Readers are encouraged to consider the information provided and form their own opinions.
