Salesforce Slumps 45% in Pre-market Trading After Earnings Post

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Salesforce (CRM) shares plunged more than 44% in pre-market trading on Wednesday after the company reported its first quarterly revenue miss in 18 years and issued weak annual guidance. The cloud software maker's current Remaining Performance Obligation (cRPO) metric, which combines deferred revenue and order backlog, indicates slowing momentum. Salesforce CEO 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 trended steadily higher for 12 months following the 50-day moving average 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.

Amid uncertainty over the macroeconomic environment, enterprise customers continue to spend cautiously on software. Salesforce's AI-focused data cloud business contributed to 25% of the deals valued above $1 million in the first quarter, unchanged from the prior quarter. It did not disclose more financial details about the business, which was nearing $400 million in annual recurring revenue in its last fiscal year.

Some brokerages warned that Salesforce's forecast also meant software demand had slowed further in April. The selling environment got worse from the end of March and more pronounced in April, which could explain why off-cycle names, like Workday or Salesforce, suffered more than ServiceNow or Microsoft. Salesforce could turn to large deals to accelerate growth and would consider them if they were "accretive" and had "the right metrics."

Activist investors pressured Salesforce last year to prioritize profitability, after years of growing its business through big deals, including the $27.7 billion acquisition of Slack in 2021. RBC analyst Rishi Jaluria said that investors wouldn't react well to most large deals at this point, given growth is slowing down, a big acquisition would be viewed as buying growth.

At least ten brokerages lowered their price targets on the stock following the results. D.A. Davidson's PT of $230 was the lowest among 49 analysts covering the stock.