(Bloomberg) — Salesforce Inc. fell about 16% in extended trading after the software maker said current quarter revenue growth will stagnate to the slowest in its history, fueling concerns about the company’s ability to stay relevant as the industry shifts to artificial – intelligence tools.
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Sales will rise as much as 8% to $9.25 billion in the period ending in July, the San Francisco-based company said in a statement on Wednesday. That would be the first quarter of single-digit revenue growth for Salesforce in nearly two decades as a publicly traded company.
Analysts estimate an average of $9.35 billion, according to data compiled by Bloomberg. Earnings, excluding some items, will be about $2.35 per share, compared to the average estimate of $2.40.
Investors were concerned about Salesforce’s declining revenue growth over the past year as the company turned its attention to improving profits. Management has touted the potential of artificial intelligence-focused software and features to boost sales. The company has also increased buybacks and initiated a dividend to keep Wall Street happy.
“I wonder if a lot of CIOs’ focus on AI is coming at the expense of expansion 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 profits and the long-term potential of artificial intelligence as positive for the company. “We are 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 increase revenue until 2025 or 2026.
Shares fell to a low of $223.10 in extended trading after closing at $271.62 in New York. The stock is up just 3.2% this year. Many software companies have lagged behind others in the technology sector, as hardware and chip companies like Nvidia Corp. and Dell Technologies Inc. have experienced major rallies.
Salesforce’s Data Cloud, which organizes information for analytics and artificial intelligence, is a major focus for executives and investors. The business unit with Data Cloud, Mulesoft and Tableau increased 24% to $1.4 billion. Analysts on average expected $1.36 billion.
Deal strategy
Salesforce recently considered acquiring Informatica Inc., a maker of data organization software, underscoring its investment in the product category, before talks fell through. While some investors are against any major acquisition, especially 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 IT reports.
Benioff said on a conference call after the results that if the company “looks at a large-scale acquisition, we will ensure that it is not dilutive to our customers, that it is accretive to growth, that it has the right metrics, and we will also quickly walk away from things we are not entirely confident in.”
In the first fiscal quarter ended April 30, revenue rose 11% to $9.13 billion. Profit, excluding some items, amounted to $2.44 per share. Analysts estimate earnings on average at $2.38 per share on revenues of $9.15 billion.
Current remaining performance obligation, a measure of contracted revenue, rose 10% to $26.4 billion, below estimates. This underperformance could be due to large deals not closing or client headcount stagnating, wrote Anurag Rana, an analyst at Bloomberg Intelligence.
Customers were more cautious this quarter than the previous quarter — making smaller purchases and waiting longer to sign new deals, Chief Operating Officer Brian Millham said on the call. “It’s similar to what we felt in the first half of last year.”
(Updates with comments from supervisor in ninth paragraph.)
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