Salesforce shares fell the most since 2008 after poor forecasts

(Bloomberg) — Salesforce Inc. shares fell. The most in nearly 16 years after the software maker forecast the slowest quarterly sales growth in history, renewing fears that the company will be left behind in the artificial intelligence boom.

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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. This will be the first quarter of single-digit sales growth for Salesforce in its nearly two decades as a publicly traded company. The stock fell as much as 19% to $222.20, the largest intraday decline since August 21, 2008.

Analysts, on average, estimated revenue of $9.35 billion, according to data compiled by Bloomberg. Salesforce said earnings, excluding certain items, will be about $2.35 per share, also below expectations.

Read more: Salesforce declines as forecast raises widespread concerns: Streets detour

The outlook heightens investor concerns about Salesforce’s declining sales growth last year as the company turned its attention to boosting profits. Management touted the potential for AI-oriented software and features to increase revenue. The company also increased buybacks and began paying dividends in an attempt to keep Wall Street happy.

The stock was up just 3.2% this year through Wednesday’s close. Many software companies lagged others in the technology sector as the artificial intelligence craze disproportionately benefited shares of hardware and chip companies including Nvidia Corp. and Dell Technologies Inc. Salesforce’s outlook weighed on the performance of the entire software sector on Thursday, with Oracle Corp. ServiceNow Inc, SAP SE and other companies also declined.

“I would question whether a lot of CIOs’ focus on AI is coming at the expense of Salesforce expansions,” Rishi Galloria, an analyst at RBC Capital Markets, said in an interview with Bloomberg TV.

CEO Marc Benioff highlighted the recent focus on profit and the long-term potential of AI as a positive for the company. “We are very 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 drive revenue until 2025 or 2026.

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Salesforce’s Data Cloud, which organizes information for analysis and artificial intelligence, is a key focus for executives and investors. The business unit, which includes Data Cloud, Mulesoft and Tableau, increased 24% to $1.4 billion. Analysts on average expected $1.36 billion.

Transaction strategy

Salesforce recently considered buying Informatica Inc., a maker of data organization software, underscoring its investment in the product category, before talks fell through. While some investors are opposed to any large acquisition, especially after Salesforce bought Slack for $27 billion in 2021, “inorganic operations are part of our strategy — and always will be,” said Executive Vice President Mike Spencer, who declined to comment. On Informatica reports.

Benioff, speaking on a post-results conference call, said that if the company looked “at a large-scale acquisition, we would make sure it doesn’t dilute our customers, that it’s accretive, that it has the right metrics, and we’ll also be quick to move away from things that we’re not completely confident about.”

In the fiscal first quarter ended April 30, revenue increased 11% to $9.13 billion. Earnings, excluding certain items, were $2.44 per share. Analysts, on average, estimate earnings of $2.38 per share on revenue of $9.15 billion.

The current remaining performance obligation, a measure of contracted sales, rose 10% to $26.4 billion, below estimates. Anurag Rana, an analyst at Bloomberg Intelligence, said this poor performance may be due to large deals not being closed or headcount among clients remaining stagnant.

Customers were more cautious in the quarter than they had been in the previous quarter — with smaller purchases and longer waits before signing new deals, Chief Operating Officer Brian Milham said during the call. “It’s similar to how we felt in the first half of last year.”

-With assistance from Ryan Vlastelica and Subrat Patnaik.

(Updates with other software stock movements in fifth paragraph)

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