Stock Analysis & Ideas

Salesforce (NYSE:CRM), Zoom Video (NASDAQ:ZM) Slash FY23 Projections on Economic Headwinds

Story Highlights

Challenging macroeconomic conditions have compelled cloud computing firms Salesforce and Zoom Video to lower their projections for Fiscal 2023. In this article, we will discuss near-term expectations on these stocks and see what might lie beyond.

The cloud computing industry, which leveraged healthy demand during the peak pandemic period, is now facing headwinds from the rapidly changing preferences of consumers. This week, two cloud-clouding companies, Salesforce, Inc. (NYSE:CRM) and Zoom Video Communications, Inc. (NASDAQ:ZM), expressed their concerns over decelerating business activities and provided lower projections for Fiscal 2023 (ending January 2023).

It is worth mentioning that changes in consumers’ spending behavior seem to be a byproduct of the economic slowdown in the United States, which is caused by lower disposable income, an increase in interest rates, supply-chain issues, and costs inflation.

Against the backdrop, let’s discuss Salesforce’s and Zoom Video’s latest earnings results and their projections for 2022. Also, a consolidated chart of the two companies, prepared using TipRanks’ Stock Comparison tool, is provided below to help investors understand Wall Street’s take on them.

Lower Projections Upset Salesforce’s Investors

Despite reporting an earnings beat of 13.3% and a revenue surprise of 0.4% in the second quarter of Fiscal 2023 (ended July 31, 2022), Salesforce’s lower projections for Fiscal 2023 have disappointed its investors. Shares of this $173-billion company have declined 3.4% since its earnings release.

For Fiscal 2023, the developer of cloud-based enterprise software now expects revenues to be within the $30.9-$31 billion range, implying year-over-year growth of 17%. This projection is lower than the previously stated range of $31.7-$31.8 billion, reflecting a surge of 20% from the previous year.

Non-GAAP earnings are forecast to be $4.71-$4.73 per share versus $4.74-$4.76 per share stated earlier.

For the third quarter (ending October 2022), the company expects revenues to be $7.82-$7.83 billion and adjusted earnings to be $1.20-$1.21 per share. These projections are lower than the consensus estimate of $8.07 billion for revenues and $1.23 per share for earnings. 

What Is the Future of Salesforce Stock?

Despite the near-term weakness, the long-term prospects of Salesforce appear strong. The company’s President and CFO, Amy Weaver, said, “We continue to deliver disciplined, profitable growth at scale, and have a capital allocation strategy that will make us an even better-positioned company for the long term.”

Wall Street is unanimously optimistic about the prospects of Salesforce. On TipRanks, analysts have a Strong Buy consensus rating on CRM stock, which is based on 29 Buys, four Holds, and one Sell. CRM’s average price forecast of $224.78 reflects 29.25% upside potential from the current level.

Following Q2 results, RBC Capital’s analyst, Rishi Jaluria, reiterated a Buy rating on CRM with a price target of $235 (35.13% upside potential).

Also, retail investors are Positive about the stock, as they have increased their exposure by 0.6% in the past seven days. Further, hedge funds, too, believe in the company’s growth story. They have collectively purchased 3.9 million CRM shares in the last quarter.

Investors Ditch ZM Stock on Weak Projections

Shares of the $25.6-billion communications technology company have declined approximately 12% since it lowered its projection for Fiscal 2023 (ending January 2023). It is worth mentioning here that the company’s earnings and sales surprise stood at 10.5% and (1.8%), respectively, in the second quarter of Fiscal 2023.

It now forecasts revenues to be within the $4.385-$4.395 billion range for the year, lower compared with the previous projection of $4.53-$4.55 billion. Adjusted earnings are anticipated to be $3.66-$3.69 per share versus $3.70 to $3.77 per share stated earlier.

For the third quarter, the company forecasts $1.095-$1.100 billion in revenues and $0.82-$0.83 per share for adjusted earnings. The consensus estimate for the quarter is $1.15 billion for revenues and $0.84 per share for earnings.

What Is the Prediction for Zoom Video Stock?

On TipRanks, Zoom Video’s average price prediction is $109.58, which represents 27.83% upside potential from the current level. The highest forecast is $130 while the lowest is $76.

On TipRanks, analysts have a Moderate Buy consensus rating on ZM, which is based on eight Buys, 13 Holds, and one Sell. Three days ago, Matthew Niknam of Deutsche Bank reiterated a Hold rating on ZM stock while lowering the price target to $95 (10.83% upside potential) from $105.

Meanwhile, financial bloggers are 71% Bullish on ZM stock versus the sector average of 66%. Interestingly, hedge funds are Very Positive on ZM stock. They have increased their exposure to the stock by 4.6 million shares in the last quarter.

Furthermore, the company’s Founder and CEO, Eric S. Yuan, said, “We believe these innovative solutions will further expand our market opportunity for future growth and expansion with customers.”

Concluding Remarks

Despite challenging operating conditions for Fiscal 2023, the top management of Salesforce and Zoom Video seems to be optimistic about their long-term prospects. Their optimism could be supported by the expected growth in the market size of the cloud computing industry in the United States. According to Statista, U.S. cloud computing revenues are forecast to be $200 billion in 2022 and reach $323 billion by 2026.

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