- Salesforce stock plunged 21% after the company reported its first revenue miss since 2006.
- The combination of weak revenues and weak guidance highlighted lingering macro challenges for the company.
- Much of Wall Street defended the stock, arguing that it could see a boost from generative AI.
Salesforce stock plunged as much as 21% on Thursday after the company reported its first revenue miss since 2006.
The stock was trading at $214.16 per share as of 11:30 a.m. ET.
A combination of weaker-than-expected first-quarter revenue and light second-quarter guidance suggested to investors that macroeconomic challenges continue to linger for enterprise software providers.
Here are the key numbers:
- Q1 Revenue: $9.13 billion, versus analyst estimates of $9.17 billion
- Q1 Adjusted earnings per share: $2.44, versus analyst estimates of $2.38
- Q2 Revenue guidance: $9.2 billion to $9.25 billion, versus analyst estimates of $9.37 billion
"Macro headwinds returned with a vengeance," analysts at Citi said in a note on Thursday. That sentiment was echoed by analysts at Bank of America, who said "tough macro catches up to Salesforce."
An uncertain economic outlook, an ongoing slowdown in the job market, and the prioritization of business spending on generative AI technologies weighed on Salesforce's results. Questions also remain about how Salesforce will monetize opportunities in generative AI.
Still, Wall Street is largely defending the software giant after its big earnings miss.
Goldman Sachs reiterated its "Buy" rating on Salesforce and categorized the weakness in the company's results as "cyclical headwinds" that should ultimately dissipate.
"We believe there are both macro and micro reasons for optimism. We note both headwinds from interest rates easing, uncertainty abating after this year's elections, and outsized growth potential from Gen-AI could all serve as growth catalysts," Goldman Sachs said, adding that the company has a lot of levers to pull to increase profit margins.
Bank of America reiterated its "Buy" rating and said it sees "signs of greenshoots forming" with the company's stock price sell-off representing an attractive risk/reward profile.
"Commentary suggests very healthy pipelines across a number of growth offerings. Finally, subscription growth in the Sales and Service Clouds was stable, suggesting relative strength in the core business," Bank of America said.
Citi reiterated its "Neutral" rating and took a more cautious view on Salesforce following their results.
"Valuation is undemanding at 20x EPS, 18x EV/FCF (FY25), but with slowing growth, lack of de-risked estimates and more active M&A we are comfortable on the sidelines awaiting improving growth or more evidence of Data Cloud/Gen AI momentum/monetization," Citi said.
Finally, Wedbush analyst Dan Ives categorized Salesforce's results as a "small bump in the road" in a note on Thursday, suggesting that investors should take advantage of the decline to buy shares.
"We would be buyers on weakness this morning as seeing the forest through the trees this is a turnaround in motion for a premier tech stalwart with a massive installed base led by one of the best CEOs in the global tech landscape in our view," Ives said.