Salesforce.com, Inc. (NYSE:CRM) reports fourth-quarter and full-year 2023 financial results after the close on March 1 and analysts at Wedbush say their ‘checks’ on the quarter are mixed with continued weak spots/softening around lengthening sales cycles and isolated deal slippage seen in the field.
Maintaining an ‘Outperform’ rating for the stock and price target of US$200, the analysts wrote that they have seen some improvement in large deal activity on core enterprise deals while the cross-selling pipeline deal flow has expanded this quarter.
Overall, they expect a roughly in-line January quarter with some puts and takes in the field that give some momentum into the next 12 to 18 months to “turn around this once golden growth story.”
READ: Salesforce positioned for turn around in 2023 after rocky few quarters, Wedbush analysts say
Activism, activism, activism
“That said, for (chair, CEO, and co-founder Marc) Benioff and CRM the actual quarter and FY24 take a back seat to the fluid activist situation which is happening at Salesforce with the Street's patience wearing thin after a head-scratcher Slack deal and slowing growth/underachieving margins front and center,” the analysts wrote.
The analysts said there is a range of strategic possibilities on the table for Salesforce, with the Street laser-focused on Benioff's comments and plan outlined next week on the post-results conference call.
“This is a seminal call for the CRM story as growing activism and Street frustration is not going to be satisfied with the standard cookie cutter conference call and view into FY24,” the analysts wrote. “Activism is clearly now circling the CRM name in droves as the massive cloud installed base, FCF (free cash flow) potential, under performing margin story, headache Slack deal, and rotating C-level suite has created the perfect storm for Benioff.
“Ultimately we view this all as a much-needed positive for the story to put pressure on underperforming assets and strategically look at possible spin-offs over the next 6-12 months depending on outside strategic interests as well as further cost cuts,” they added.
The analysts said Salesforce’s fourth-quarter performance will be a key inflection point in the company’s story as it heads into its 2024 financial year strategically with several key goals to rationalize the cost structure and double down on its core growth tenets, noting that the company already announced headcount cuts in early January.
While navigating macro headwinds on the horizon, they said the company is also positioning itself to battle with Microsoft for continued market share for cloud and collaboration spaces over the next few years.
“We believe the risk/reward is compelling at current valuations for investors willing to hold this core cloud stalwart stock during this near-term volatile period of macro/demand uncertainty with the activism wild card poker game building,” the analysts concluded.
Salesforce’s shares traded 1.3% lower at $162.99 in early afternoon trade in New York.
Contact the author at stephen.gunnion@proactiveinvestors.com