Categories Analysis, Technology

Salesforce stock hit by weak guidance, co-CEO’s exit. What next?

In an announcement that surprised many, the company this week said its co-chief executive officer Bret Taylor stepped down

For technology stocks, 2022 has been a challenging year, with companies losing significant market value amid prolonged stock selloff. In that respect, Salesforce, Inc. (NYSE: CRM) is among the worst-affected tech firms. But the company maintained stable financial performance throughout the year, delivering decent sales growth in every quarter.  

CRM, which has lagged behind most of its cloud peers, dropped about 52% since peaking a year ago. The customer relationship management platform’s mixed earnings report added to the losses this week. To a large extent, investor sentiment was hurt by the lower-than-expected guidance for the current quarter ending January 2023, which outweighed the positive earnings outlook and impressive third-quarter outcome.

co-CEO Exits

But things got worse after the surprise exit of co-chief executive officer Bret Taylor. For many stakeholders, reports of Taylor’s resignation came as a shock on Thursday, and the stock suffered. The importance of the dip in valuation is that investors are now getting a unique chance to buy the stock cheap. It is estimated that CRM would go beyond $200 before the end of 2023, which justifies experts’ consensus strong buy recommendation. Q3 2022 Earnings Call Transcript

The San Francisco-based provider of cloud-based software said it is expecting earnings to be in the range of $1.20 per share to $1.21 per share in the fourth quarter, on revenues of $7.82-$7.83 billion. However, the top-line forecast is below analysts’ estimates. It is worth noting that the tech firm’s earnings either matched or topped expectations in every quarter in the last decade. In the three months that ended October 2022, revenues grew 14% year-over-year to $7.84 billion. As a result, adjusted profit moved up 10% to $1.40 per share, even as operating margin climbed to a record high.   

Investing in CRM?

The question is whether the company can sustain the current momentum, and will the stock regain its lost strength. There are multiple risks to growth, as evidenced by the management’s cautious guidance. They include the economic slowdown and the drag on enterprise spending amid high inflation and uncertainties in the market.

Salesforce Q3 2022 earnings infographic

Also, recent acquisitions – including the high-value buyout of Slack, and earlier Tableau and MuleSoft – are yet to generate expected returns. On the positive side, the software products of Salesforce are highly relevant in the current scenario, which ensures stable demand growth. Naturally, market watchers are optimistic about the company’s future prospects.

Stock Dips

Taylor reportedly left the company to focus on the businesses he’s founded. His departure doesn’t seem to have gone down well with shareholders. “….our industry solutions continue to be a strength in our portfolio, with out-of-the-box processes that enable our customers to achieve faster time-to-value and lower implementation costs. Even with the many successes in the quarter, we expect this increasingly challenging buying environment to continue next year. I’m confident that Salesforce has never been more mission-critical to our customers in this environment,” Taylor said on the earnings call earlier.

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Shares of Salesforce ended the last trading session sharply lower, marking one of the biggest single-day losses. After losing about 18% in the past six months, CRM underperformed the broad market this week.


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