Salesforce’s ‘poor performance’ leaves Wall Street playing defense, cutting targets

Salesforce (NYSE:CRM) was in focus on Thursday after the enterprise software giant reported fiscal first-quarter results and guidance that missed estimates, leaving many on Wall Street to wonder about its near-term future.

Shares fell nearly 16% in premarket trading.

Mizuho Securities analyst Gregg Moskowitz said he believes Salesforce is still “well situated” to help its customer base participate in the digital transformation. However, it’s likely to do so with focus on “profitable growth above else,” as the company continues to navigate a difficult macro environment. Moskowitz reiterated his Buy rating but lowered his price target to $300 from $345.

Others agreed with that sentiment, including Morgan Stanley analyst Keith Weiss. While the weak bookings in the first-quarter are likely to “test investor patience,” the stock does not reflect any expectations from generative artificial intelligence and “under prices” core earnings growth at current levels.

“Bottom line, operational discipline and positioning as a core system of record in the enterprise sustain earnings power at Salesforce, which is not priced into the stock at 1.2X PEG versus GARP peers at 2.0X,” Weiss wrote in an investor note. “We continue to view GenAI as a tailwind for Salesforce, with benefits likely coming in CY25, but at these levels, GenAI represents a call option.”

Weiss has an Overweight rating on Salesforce but lowered his price target to $320 from $350.

With Salesforce likely to grow revenue at a slower rate in the near-term future, the focus on profitable growth and free cash flow is important, Jefferies analyst Brent Thill said.

“Despite the [near-term] demand headwinds, we believe CRM can still drive margins higher as their margins in the low 30s still lag large cap peers in the high 30s,” Thill wrote, adding that the stock trades at a 40% discount to its large-cap peers.

Thill also reiterated his Buy rating and lowered his price target to $350 from $360.

Financial results, guidance

For the period ending April 30, Salesforce earned an adjusted $2.44 per share on $9.13B in revenue. Marketing and commerce revenue came in at $1.28B during the period, while revenue from services was $2.18B. Subscription and support revenue generated $8.59B during the period.

A consensus of analysts estimated that Salesforce would earn $2.37 per share on $9.15B in revenue.

Looking to the second-quarter, Salesforce expects to earn between $2.34 and $2.36 per share on an adjusted basis, below the $2.40 analysts were expecting. Sales are forecast to be between $9.2B and $9.25B, below the $9.35B estimate.

The company kept its full-year outlook, however, as it sees sales for fiscal 2025 between $37.7B and $38B, below the $38.05B estimate. Earnings for the full-year are expected to be between $9.86 and $9.94 per share on an adjusted basis, above the $9.80 per share estimate.