(Bloomberg) — Salesforce Inc. dropped about 16% in extended trading after the software maker said sales growth in the current quarter will stall to the slowest in its history, fueling concerns about the company’s ability to stay relevant as the industry shifts toward artificial-intelligence tools.
Most Read from Bloomberg
Revenue will rise as much as 8% to $9.25 billion in the period ending in July, the San Francisco-based company said Wednesday in a statement. That would be the first quarter of single-digit sales growth for Salesforce in almost two decades as a publicly traded company.
Analysts, on average, estimated $9.35 billion, according to data compiled by Bloomberg. Profit, excluding some items, will be about $2.35 a share, compared with the average estimate of $2.40.
Investors have been concerned about Salesforce’s sliding sales growth over the past year as the company turned its attention to improving profit. Management has touted the potential for artificial intelligence-oriented software and features to boost revenue. The company has also increased buybacks and initiated a dividend to keep Wall Street happy.
“I would question if a lot of the focus by CIOs on AI is coming at the expense of expansions at Salesforce,” said Rishi Jaluria, an analyst at RBC Capital Markets, in an interview on Bloomberg Television.
Chief Executive Officer Marc Benioff highlighted the recent emphasis on profit and the long-term potential of artificial intelligence as positive for the company. “We’re incredibly well positioned to help companies realize the promise of AI over the next decade,” Benioff said in the statement. Most analysts don’t expect generative AI features within Salesforce applications to boost revenue until 2025 or 2026.
The shares dropped to a low of $223.10 in extended trading after closing at $271.62 in New York. The stock has gained just 3.2% this year — many software companies have lagged behind others in the technology sector as hardware and chip firms like Nvidia Corp. and Dell Technologies Inc. have enjoyed big rallies.
Salesforce’s Data Cloud, which organizes information for analysis and artificial intelligence, is a major focus for executives and investors. The business unit containing Data Cloud, Mulesoft, and Tableau increased 24% to $1.4 billion. Analysts, on average, expected $1.36 billion.
Deal Strategy
Salesforce recently considered buying Informatica Inc., a maker of data-organization software, underscoring its investment in the product category, before talks fizzled. While some investors oppose any large acquisition, particularly after Salesforce bought Slack for $27 billion in 2021, “inorganic is part of our strategy — it always will be,” said Executive Vice President Mike Spencer, who declined to comment on the Informatica reports.
Benioff, speaking on a conference call after the results, said if the company looks “at a large scale acquisition, we’re gonna make sure that it is not dilutive to our customers, that it’s accretive, that it has the right metrics, and we are also going to be quick to walk away from things that we are not totally confident in.”
In the fiscal first quarter ending April 30, revenue increased 11% to $9.13 billion. Profit, excluding some items, was $2.44 per share. Analysts, on average, estimated profit of $2.38 a share on revenue of $9.15 billion.
Current remaining performance obligation, a measure of contracted sales, increased 10% to $26.4 billion, below estimates. This underperformance may have been due to large deals not closing or headcount among customers remaining stagnant, wrote Anurag Rana, an analyst at Bloomberg Intelligence.
Customers were more cautious in the quarter than they had been in the preceding one — with smaller purchases and a longer wait before signing new deals, Chief Operating Officer Brian Millham said during the call. “It’s similar to what we felt in the first half of last year.”
(Updates with comments from executive in the ninth paragraph.)
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.
Signup bonus from
