By Levi Sumagaysay
Salesforce Inc.'s stock is on pace for its largest drop in a year and is the worst-performing stock on the Dow Jones Industrial Average on Thursday after the surprise announcement that co-Chief Executive Bret Taylor is leaving the company next month, along with reporting slower growth and plenty of uncertainty.
Salesforce (CRM) stock was down almost 10% to $144.89 in intraday trading Thursday, a day after reporting third-quarter results that beat expectations but issuing a lower-than-expected fourth-quarter forecast. Also, Taylor said he has decided to depart the company, leaving co-CEO Marc Benioff in the sole CEO role at the end of January.
In addition, the cloud-software company did not issue guidance for fiscal year 2024, with Chief Financial Officer Amy Weaver saying on the earnings call Wednesday that it would be "premature" and that she will do so next quarter instead.
"We are experiencing a very unpredictable macro environment as our customers are working to ensure their businesses are also healthy for the long term," Weaver said. "Compounding that dynamic is an unprecedented foreign currency market."
Some analysts said that's a reason to worry.
"The omission is glaring relative to peer companies that chose to guide for next fiscal year even despite not having this practice," wrote John DiFucci, analyst for Guggenheim Securities, in a note to clients. "It's almost as glaring as the unexpected departure of Co-CEO and Vice Chair Bret Taylor... Without the expected initial FY24 guidance, it makes us (and likely others) wonder if more serious problems are brewing under the surface." Guggenheim is neutral and has a $150 price target on the stock.
Mark Moerdler, a Bernstein analyst, echoed those concerns. Of Taylor's departure and the lack of guidance for the next fiscal year, he wrote: "Not a good mix and investors must be wondering if the wheels are falling off." Bernstein has a market-perform rating on Salesforce stock, and a price target of $172.
Taylor's exit is "a significant blow," wrote Scott Berg, analyst for Needham & Co. "While Mr. Benioff remains the company's key visionary, we view Mr. Taylor's departure as a blow to the company's product strategy since he led product and helped shepherd the company through a difficult stage to better scale its architecture," Berg said, adding that he believed Taylor to be the driving force behind Salesforce's purchase of Slack and now wonders what's next for Slack's product strategy. Needham has a hold rating on the company's stock.
Analysts point to some silver linings, including the progress the company has made on operating margins, which Weaver said was at an all-time high of 22.7% in the third quarter. Kirk Materne of Evercore ISI wrote that "Salesforce remains focused and disciplined on the cost side of the equation, delivering operating margins well ahead of guidance" in the third quarter and raising fiscal year 2023 guidance to 20.7%. Evercore has an outperform rating and $200 target price for the stock.
William Blair analyst Arjun Bhatia wrote that "despite a challenging backdrop, the company continues to drive steady growth at scale, while simultaneously improving profitability and using cash flow to reduce share dilution." He said he felt good about the company's "stickiness" and broad presence and offerings, and reiterated an outperform rating.
Shares of Salesforce are down 43% this year and are on track for their for worst year since 2008, when they declined nearly 49%. Meanwhile, the Dow Jones Industrial Average , of which the company is a component, has fallen more than 5% this year.
(END) Dow Jones Newswires
December 01, 2022 14:34 ET (19:34 GMT)
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