The last time Salesforce stock (CRM) experienced a one-day drop of this magnitude, George W. Bush was still in his first presidential term.
On Thursday, Salesforce’s fiscal first-quarter results and earnings commentary sent shares 20% lower, making it the stock’s worst day since July 2004. The decline weighed on the Dow Jones Industrial Average (^DJI) during the trading session after Salesforce forecast slowing sales. growth in the current quarter.
Top executives at the cloud software provider noted “measured buying behavior” on the earnings call, with “elongated deal cycles, deal compression and a high degree of budget control.”
RBC analyst Rishi Jaluria described the results as “a real miss.”
“This is a tough environment we’re in,” Jaluria told Yahoo Finance. “I know there were some green shoots, and Marc Benioff sounded very optimistic about the Q4 print, but the macro environment for software is just very, very difficult right now, and I think that’s very clear.”
With momentum waning, some Wall Street analysts fear Salesforce will repeat its acquisitive history to initiate more growth.
“It’s clear that if you look at the investment community, they don’t want any kind of large-scale mergers and acquisitions within Salesforce,” CFRA analyst Angelo Zino told Yahoo Finance. “But if you look at some of the speculation out there in recent months, … it appears that Salesforce may be looking for mergers and acquisitions to reinvigorate growth within the company.”
“We’ll see,” Zino added, “but that’s definitely a risk, I think, for investors who want this name.”
The San Francisco-based company’s previous acquisitions include the $27 billion acquisitions of Slack; Tableau, for $15 billion; and MuleSoft, for $6 billion – to name just a few notable announcements over the past decade.
During the earnings call, Salesforce CEO Marc Benioff noted that the company is cautiously open to another large-scale acquisition, a shift from last year when he said the company was shelving billion-dollar deals.
“We’re always looking at what the next level of innovation is,” Benioff said Wednesday. “But as we have promised you, if we look at a large-scale acquisition, we will ensure that it is not dilutive to our customers, that it is accretive, that it… has the right metrics. And we will also be quick to walk away from things that we don’t fully trust or have no faith in, any company.”
In February, Salesforce acquired Spiff, a compensation management software company, for $419 million. However, the company also ended speculation that it would acquire cloud data platform Informatica.
The broader push for growth comes as companies have announced huge investments in artificial intelligence, raising concerns that Salesforce could fall behind in the AI boom.
“I think investors don’t want Salesforce to buy revenue growth, and investors don’t want Salesforce to buy EBITDA,” Jaluria said. “So if they were to make a major acquisition, I think it would have to be something that makes a lot of sense strategically and is very close to the core of what they do.”
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