Not only is the San Francisco Bay Area saturated, but so is the cloud market pioneered by Salesforce Inc. In addition to lower margins and lower quality revenue, one analyst said customer relationship management software has lowered the stock price of the giant.
On Wednesday, Bernstein analyst Stacy Razgon downgraded Salesforce CRM.
It underperformed the market because it fell into “growth purgatory”.
“Salesforce was a controversial name last year as growth slowed and the company started focusing on margins,” said Rasgon. “Management has led the company to reach $50 billion in sales in FY26 and a PF operating margin of more than 25%. , growth continues to slow and the company is falling short of expectations.”
“The core of our argument is that growth has slowed over the years, but that slowdown is masked by acquisitions,” Rasgon said. Salesforce’s most recent major acquisition was that of Slack Technologies, which closed on July 21st, and last month, Salesforce announced that Stewart Butterfield, co-founder and CEO of his Slack company. said to leave.
“With M&A tailwinds no longer sufficient, core markets approaching cloud saturation, increased competition, and macro issues impacting growth, management is driving aggressive margin growth. ,” Rasgon said. “However, the cuts will have a negative impact on efficiency, growth and customer/employee satisfaction. Margin improvements will be below expectations in our view and will emerge over the years.”
Last week, Salesforce announced a 10% headcount reduction, shrinking office space and other initiatives to drive “profitable growth” while reducing operating costs. But Rasgon said these “improved margins will take time to take effect and are likely to be much less than Street expects.”
“If you compare Salesforce’s valuation to its peers, you’ll see that Salesforce is growing at a similar rate to its peers, but with lower margins and lower quality revenue, it’s overpriced,” Rasgon said. says. “Additional pain lies ahead for Salesforce, and we are lowering the rating to Underperforming due to a number of factors that could lower the multiple.”
Of the 50 analysts covering Salesforce, 38 buy, 10 hold, 1 sell, with an average target price of $188.90.
In July, 90% of analysts covering Salesforce gave the stock a Buy rating, but that figure will steadily drop to 76% by the end of 2022, according to FactSet data. I was.
read: Cloud software is a ‘fight for knives in the mud’ and Wall Street is afflicting the one sector it was winning
Over the past 12 months, Salesforce’s stock has fallen 36%, while the iShares Expanded Tech-Software Sector ETF IGV
Global X Cloud Computing ETF CLOU,
First Trust Cloud Computing ETF SKYY fell 34%.
WisdomTree Cloud Computing Fund WCLD,
decreased by 47%. On the other hand, the Dow Jones Industrial Average DJIA,
The S&P 500 SPX is down 7%.
fell 16% while the Nasdaq Composite Index COMP
is 28% off in the last 12 months.
The S&P 500 was up 0.6% and the Nasdaq was up 1%.
