Salesforce Shares Slump as Fiscal 2022 Profit Forecast Disappoints

Salesforce.com Inc, an American cloud-based software company, reported better-than-expected profit and revenue in the fiscal fourth quarter but shares slumped over 3% on disappointing full-year 2022 profit.

The leading provider of enterprise cloud computing solutions said it expects full-year 2022 non-GAAP earnings per share in the range of $3.39 and $3.41, below Wall Street consensus estimates of $3.49.

Following this pessimism, Salesforce shares, which surged over 35% in 2020 and added another 4% so far this year, slumped more than 3% to $224.05 in extended trading on Thursday.

The San Francisco, California-based software company said its fourth-quarter revenue rose 20% year-over-year to $5.82 billion, beating the market expectations of $5.68 billion. The fourth-quarter GAAP diluted earnings per share came in at $0.28, and non-GAAP diluted earnings per share was $1.04, above analysts’ expectations of $0.75 per share.

The leading provider of enterprise cloud computing solutions upgraded its fiscal 2022 revenue forecast to $25.65-$25.75 billion, better than the market consensus of $25.42 billion.

“We think Salesforce’s results are generally consistent with software peers who are experiencing robust demand arising from the need to accelerate the broad digital transformation efforts that were already underway. Deal sizes continue to grow larger as conversations are increasingly about the digital transformation of a customer’s entire organization rather than just a specific area,” said Dan Romanoff, equity analyst at Morningstar.

“Customers remain focused on the post-pandemic operating environment and want flexibility, which reinforces the rationale for the Slack acquisition. We are raising our fair value estimate to $265 per share, from $253, based on rolling our forecast and the solid near-term results and guidance. With the recent pullback, we think shares are undervalued.”

Salesforce Stock Price Forecast

Twenty-six analysts who offered stock ratings for Salesforce in the last three months forecast the average price in 12 months of $273.78 with a high forecast of $320.00 and a low forecast of $217.00.

The average price target represents an 18.48% increase from the last price of $231.08. From those 26 analysts, 19 rated “Buy”, seven rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $270 with a high of $381 under a bull scenario and $186 under the worst-case scenario. The firm gave an “Equal-weight” rating on the cloud-based software company’s stock.

“While investments made in FY21 weigh on cash flow growth in FY22, they also improve Salesforce‘s already strong positioning ahead of key secular growth drivers as we head into an improving spending environment. The pullback in shares also creates a more attractive risk/reward at 34X EV/CY22 FCF,” said Keith Weiss, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Piper Sandler lowered the target price to $240 from $242. BofA upped the price objective to $300 from $275. Salesforce.com had its price target hoisted by Mizuho to $290 from $275. The firm currently has a buy rating on the CRM provider’s stock.

Moreover, BMO Capital Markets upped their price objective to $285 from $260 and gave the company an outperform rating. Barclays set a $276 target price and gave the stock a buy rating. Raymond James increased their target price to $280 from $255 and gave the stock a strong-buy rating. JMP Securities increased their target price to $282 from $272 and gave the stock an outperform rating.

Analyst Comments

“While Salesforce remains one of our best secularly positioned names given enterprise IT spend prioritized towards digital transformation, we see current valuation reflective of long-term share gains and achieving management’s target for $50 billion revenue in CY25,” Morgan Stanley’s Weiss added.

“At CRM‘s current scale and market cap, an increasing focus on FCF and earnings is necessary for further price appreciation, in our view. However, the recent large ($27 billion) and dilutive acquisition of Slack makes margin expansion in the near to medium term less likely. We look for greater clarity and confidence into revenue growth and margin framework at CRM in order to get more constructive.”

Check out FX Empire’s earnings calendar