What to Watch Out For After Salesforce Stock’s Post-Earnings Plunge
Key Takeaways
- Salesforce shares plunged more than 16% in extended trade on Wednesday after the company reported its first quarterly revenue miss in 18 years and issued weak annual guidance.
- The Salesforce share price finds key support at $226 and $192 from key horizontal trendlines connecting prior price action.
- The cloud software maker’s current Remaining Performance Obligation (cRPO) metric, which combines deferred revenue and order backlog, indicates slowing momentum.
- Chief operating officer Brian Millham told analysts on the earnings call that the company saw budget scrutiny and longer deal cycles than usual during the quarter,
Salesforce (CRM) shares plunged more than 16% in after-hours trading on Wednesday after the cloud-based software company reported its first quarterly revenue miss in 18 years and issued weak annual sales guidance amid enterprise customers reining in their IT budgets and longer-than-average deal cycles. We take a look at the chart and identify two key levels where buyers may step in to defend the price.
Stock Price Levels To Keep An Eye On
Salesforce shares trended steadily higher for 12 months following the 50-day moving average (MA) crossing above the 200-day MA in March last year to form a bullish golden cross pattern. However, since topping out in March this year, the price has fallen below the 50-day MA, with the indicator also acting as a line of resistance during a recent countertrend rally earlier this month. Moreover, expected earnings-related selling on Thursday will likely confirm a head and shoulders, a chart pattern that indicates a possible market top.
Looking ahead, investors should keep an eye on two key levels amid weakness in the stock. Firstly, monitor the $226 region, an area on the chart where the price may encounter support from a horizontal line connecting several peaks over the past year, which also sits in close proximity to a late November price gap. Finally, it’s worth watching the $192 level, a location that finds longer-term support from a trendline stretching back to June 2022.
Key Business Metric Indicates Slowing Momentum
The cloud software maker’s current Remaining Performance Obligation (cRPO) metric, which combines deferred revenue and order backlog, indicates slowing momentum. The company had projected cRPO growth of 12% for the quarter ending April 30, however, it grew 10% in the period. Guggenheim analyst John DiFucci expected the metric to meet guidance as he argued the company can tweak it by getting customers to renew their subscriptions early, Barron’s reported.
Amid uncertainty over the macroeconomic environment, enterprise customers continue to spend cautiously on software. Salesforce chief operating officer Brian Millham told analysts on the earnings call that the company saw budget scrutiny and longer deal cycles than usual during the quarter, while CFO Amy Weaver said she anticipates deal compression and slowing projects in the professional services business throughout the remainder of the fiscal year.
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