Salesforce drops as revenue forecast falls short of analyst estimates

Salesforce drops as revenue forecast falls short of analyst estimates

(Bloomberg) — Salesforce Inc. gave a quarterly revenue forecast that fell short of analysts’ estimates, suggesting that a shaky economy may be causing some customers to reduce spending on enterprise software. Shares tumbled in protracted trading.

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Sales will reach $7.83 billion in the period ending in October, the San Francisco-based company said in a statement Wednesday. Analysts, on average, projected $8.05 billion, according to data compiled by Bloomberg. For the full year, the company slightly lowered its revenue forecast to $31 billion from $31.8 billion.

The reduced guidance reflects a shift in tone from clients as the quarter progressed, which hit particularly hard in July, Mike Spencer, recently named head of investor relations, said in an interview.

Co-Executive Chairman Bret Taylor said the company was facing a “more measured buying environment”.

Salesforce, the leader in cloud-based customer management software, has a wide range of customers in every industry. It maintained high revenue growth during the pandemic and expanded its business productivity products with the $27.7 billion purchase of messaging platform Slack, completed in July 2021. This year, however, it tried to contain some costs, including slowing down. the pace of hiring and reduction of travel. Earlier this month, the company named Brian Millham as chief operating officer, filling a role that had been vacant since Taylor was promoted to co-CEO about nine months ago.

Many software pairs such as ServiceNow Inc. have seen customers extend their buying cycles as the economy has weakened in recent months, and it is likely that Salesforce has experienced the same dynamics, wrote Keith Bachman, an analyst at BMO Capital, in note before earnings.

Spencer said the company is seeing “longer business cycles” from its customers. “We’re seeing extra approvers being added to deals – CFOs are being added to deals much more often than in the past,” he said.

The shares were down about 5.5% in extended trading after closing at $180.01 in New York. Shares are down 29% this year amid a broad technology defeat that has hit software vendors particularly hard.

The company also announced a $10 billion share buyback program.

The buyback could be management signaling to investors that they are aware of the company’s stock price, said Anurag Rana, an analyst at Bloomberg Intelligence. “Stocks have been under a lot of pressure for the last year and a half – that could have caused it,” he said in an interview with Bloomberg Television.

In the second fiscal quarter, revenue rose 22% to $7.72 billion, beating analysts’ projections. Current remaining performance obligation — or pre-sales not yet closed, which is a metric of short-term demand — grew 15% to $21.5 billion. Earnings, excluding some items, were $1.19 a share, compared with the average analyst estimate of $1.03.

Currency fluctuations, particularly the strength of the US dollar, caused about $50 million more in headwinds than anticipated in the quarter, Chief Financial Officer Amy Weaver said on a conference call. For the full year, currency fluctuations are expected to cost about $800 million in revenue, up $200 million from last quarter’s estimate.

Subscription revenue generated by its platform unit, which includes Slack, gained 34% to $1.48 billion for the period ended July 31 – the biggest increase of any division. Marketing and commerce software gained 12% to $1.12 billion, the smallest jump of any unit. Many analysts predicted a slowdown in this division due to a further pullback in marketing spending.

(Updates with CFO comments on currency in 12th paragraph.)

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