Salesforce’s Stock Tumbles as Earnings Provide Latest Dose of Software-sector Pain

By Emily Bary

Stock could notch steepest daily decline since 2008 as company sees ‘elongated deal cycles, deal compression and high levels of budget scrutiny’

Investors have been jittery about the software sector this year, and Salesforce Inc.’s latest earnings adds fuel to the fire.

The company, seen as a juggernaut in the software industry, came up short with its quarterly revenue guidance, sending its shares sliding 17% in Wednesday’s after-hours trading.

Such a decline, if it holds through Thursday’s close, would be the steepest for Salesforce shares (CRM) since they fell 18% on Aug. 21, 2008.

In looking at the current quarter, Salesforce models $9.20 billion to $9.25 billion in revenue, as well as adjusted earnings per share of $2.34 to $2.36. That compares with a consensus view of $9.35 billion and $2.40, respectively.

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“We continue to see the measured by behavior similar to what we experienced over the past two years,” Chief Operating Officer Brian Millham said on the earnings call. “And with the exception of Q4, where we saw stronger bookings, the momentum we saw in Q4 moderated in Q1 and we saw elongated deal cycles, deal compression and high levels of budget scrutiny.”

He also mentioned “some intentional changes in our go-to-market organization to drive long-term productivity and create better customer experiences, which also played a role in the softer bookings performance.”

The company brought down its full-year forecast for subscription and support revenue. That now calls for slightly below 10% growth, or 10% growth on a currency-neutral basis. The prior view was for about 10% growth, or slightly above 10% when adjusting for foreign exchange.

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Salesforce is keeping its overall full-year revenue outlook of $37.7 billion to $38.0 billion unchanged.

Evercore ISI analyst Kirk Materne saw a few bright spots in Salesforce’s latest results, including that data-cloud growth accelerated to 25% and Mulesoft growth accelerated to 27%. Still, “at this point there is a real question as to the broader spending backdrop in software and whether [Salesforce’s] updated outlook is at risk,” he said.

Materne titled his note to clients: “Software Pain Train Continues.”

The cloud-software company reported fiscal first-quarter net income of $1.53 billion, or $1.58 a share, compared with $199 million, or 20 cents a share, in the year-before period. After adjustments, Salesforce earned $2.44 a share, while analysts tracked by FactSet were modeling $2.37 a share.

Salesforce’s revenue rose 11% to $9.13 billion, whereas the FactSet consensus called for $9.15 billion.

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