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Salesforce Stock: Trimmed Guidance isn’t a Problem
Stock Analysis & Ideas

Salesforce Stock: Trimmed Guidance isn’t a Problem

Story Highlights

Salesforce is a leader in its business-software niche, but some investors may have questioned the company’s ability to face macro-level challenges. Yet, Salesforce continues to demonstrate strength despite a revised sales forecast.

Headquartered in California, Salesforce (CRM) provides customer relationship management (commonly known as CRM) software. I am bullish on the stock.

Salesforce is renowned as a leader in the niche CRM market. It’s an industry that gained prominence in 2020 as more businesses went online due to the spread of COVID-19. It makes sense, then, that Salesforce stock performed well during 2020’s second half.

The macro-level conditions have changed considerably since that time, however. Salesforce stockholders might be concerned about the technology stock rout that has taken place in 2022. Furthermore, the pandemic-related catalyst of 2020 doesn’t seem to have benefited Salesforce this year.

Unfortunately, traders who bought Salesforce stock near its peak are still waiting patiently to achieve breakeven. Also, the company’s recently reduced full-year sales outlook might seem bearish. Still, there’s data to show that Salesforce remains a force to be reckoned with in the ever-changing CRM software space.

On TipRanks, CRM scores a 9 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.

Another Year at the Top

Even prior to the onset of the COVID-19 pandemic, Salesforce was recognized as the cream of the crop in the CRM software category. This isn’t just my opinion, as Salesforce was recently ranked as the number-one CRM provider by the International Data Corporation in its latest Worldwide Semiannual Software Tracker.

This marks Salesforce’s ninth consecutive number-one ranking. Plus, amazingly, Salesforce was determined to be the number-one market share leader for CRM globally, but also specifically in North America, Latin America, Asia-Pacific (including Japan), and Western Europe.

Thus, Salesforce’s position as a market bellwether isn’t just an assumption, as it’s been established and recognized. At the same time, Salesforce stock has declined quite considerably from its 52-week peak of $311.75. Anyone who bought the stock in the $300s is probably frustrated now, but let’s get some perspective on why the share-price decline may have happened.

For one thing, the rally to $300 was quick and it was practically inevitable the Salesforce stock would need a cooling-off period. Moreover, technology stocks fell out of favor this year and Salesforce shareholders suffered collateral damage. Lately, tech-stock traders have been worried about interest rate hikes, supply shortages of technology components, Russia’s invasion of Ukraine, inflation, and an under-supply of qualified workers, among other challenges.

In a recent conference call, however, Salesforce Chairman and co-CEO Marc Benioff offered some reassurance. “So far, we’re just not seeing any material impact from the broader economic world… Our demand environment remains very strong,” Benioff said.

Along with that, CFO Amy Weaver observed that Salesforce is still growing its headcount, which is certainly a positive sign. “We are hiring, but we’re doing it in a much more measured pace,” Weaver stated.

Strategic and Relevant

In the pre-market hours of June 1, Salesforce stock was up by more than 10%. Surely, this vote of confidence among the shareholders didn’t just happen because Salesforce is expanding its headcount.

As it turns out, Salesforce had just released a slew of data related to the first quarter of fiscal-year 2023. Benioff’s reassurance was, indeed, backed up by some solid stats showing that Salesforce is still able to deliver powerful results.

Impressively, Salesforce reported $7.41 billion in quarterly revenue, up 24% year-over-year. We can break this down further, noting that Salesforce’s subscription and support revenue increased 24% year-over-year, while the company’s professional services and other revenue rose 30%.

Turning to the company’s bottom-line results, Salesforce reported quarterly non-GAAP diluted earnings per share of 98 cents. This result beat the analysts’ consensus estimate of 93 cents. It’s also good news that Salesforce had total cash, cash equivalents, and marketable securities of $13.5 billion at the end of the first quarter, as this indicates a solid capital position.

In light of these results, Salesforce Co-CEO, Bret Taylor, evidently acknowledged the company’s challenges but remained confident about the future. “Salesforce has become even more strategic and relevant to our customers as we are providing them with the agility and resilience they need to drive growth and efficiency in these uncertain economic times,” Taylor said.

Now, it must be conceded that Salesforce reduced its full FY2023 revenue guidance from a range of $32 billion to $32.1 billion, to a range of $31.7 billion to $31.8 billion. To counterbalance this concern, however, investors should note that Salesforce raised its non-GAAP FY2023 profit outlook from $4.62 to $4.64 per share, to $4.74 to $4.76 per share.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CRM is a Strong Buy, based on 29 Buy and four Hold ratings. The average Salesforce price target is $256.11, implying 28.62% upside potential.

The Takeaway

Overall, Salesforce overcame the macro-level challenges and delivered a strong quarter. Truly, the company has demonstrated that it’s still “strategic and relevant.”

There’s no need to obsess over Salesforce’s slightly lowered forward revenue guidance. The company has enough positive data points to paint a bright picture for the future, and Salesforce could certainly revisit its all-time high. Therefore, this could be a good time to buy or hold Salesforce stock, not sell it.

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