Salesforce drops on first-ever single digit sales growth outlook

SALESFORCE dropped about 16 per cent in extended trading after the software maker said sales growth in the current quarter will stall to the slowest in its history, fuelling concerns about the company’s ability to stay relevant as the industry shifts towards artificial intelligence (AI) tools.

Revenue will rise as much as 8 per cent to US$9.25 billion in the period ending in July, the San Francisco-based company said on Wednesday (May 29). 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 US$9.35 billion, according to data compiled by Bloomberg. Profit, excluding some items, will be about US$2.35 a share, compared with the average estimate of US$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 AI-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.

Chief executive officer Marc Benioff highlighted the recent emphasis on profit and the long-term potential of AI as positive for the company. “We are incredibly well positioned to help companies realise the promise of AI over the next decade,” Benioff said. Most analysts do not expect generative AI features within Salesforce applications to boost revenue until 2025 or 2026.

The shares dropped to a low of US$223.10 in extended trading after closing at US$271.62 in New York. The stock has gained just 3.2 per cent this year – many software companies have lagged behind others in the technology sector as hardware and chip firms such as Nvidia and Dell Technologies have enjoyed big rallies.

Salesforce’s Data Cloud, which organises information for analysis and AI, is a major focus for executives and investors. The business unit containing Data Cloud, Mulesoft, and Tableau increased 24 per cent to US$1.4 billion. Analysts, on average, expected US$1.36 billion.

Deal strategy

Salesforce recently considered buying Informatica, a maker of data-organisation software, underscoring its investment in the product category, before talks fizzled. While some investors oppose any large acquisition, particularly after Salesforce bought Slack for US$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.

In the fiscal first quarter ending Apr 30, revenue increased 11 per cent to US$9.13 billion. Profit, excluding some items, was US$2.44 per share. Analysts, on average, estimated a profit of US$2.38 a share on revenue of US$9.15 billion.

The current remaining performance obligation, a measure of contracted sales, increased 10 per cent to US$26.4 billion, a bit 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. BLOOMBERG