Salesforce Inc has cut its annual revenue and profit forecasts to reflect more "measured" spending from its clients and a hit from a stronger dollar, albeit as it reported better-than-expected second-quarter results after-hours on Wednesday.
The San Francisco, California-based company cut its full-year revenue forecast to between $30.90 billion and $31.00 billion, below estimates of $31.73 billion.
Salesforce reported second-quarter adjusted profit of $1.19 per share, which was 17 cents higher than estimates, and revenue at $7.72 billion slightly ahead of estimates of $7.70 billion.
The company also announced plans for a stock repurchase of up to $10 billion, its first-ever buyback, while warning of challenges in North America and major European markets for some of its products.
The company's tempered expectations marked a significant change from its stance in May when Salesforce had shrugged off any material impact from an uncertain macroeconomic environment.
"We see customers becoming more measured in the way they buy. Sales cycles can get stretched ... we started seeing this in July," Salesforce chairman and co-chief executive officer Marc Benioff said in a second-quarter results conference call, Reuters reported.
Cloud software companies with significant operations outside of the US, including Microsoft Corp and IBM Corp, have all tempered their forecasts recently due to a stronger dollar.
Canaccord Genuity cuts target, keeps 'Buy'
In a note commenting on the results, analysts at Canaccord Genuity cut their target price for Salesforce to $215 from $260 but retained a 'Buy' rating on the stock as they think it is "too cheap to downgrade here".
The Canaccord analysts said: "The next catalyst for Salesforce will be Dreamforce in mid-September, where investors will get the chance to mingle with buyers and CRM will speak to its Summer release, which went GA in June and includes enhancements such as predictive forecasting, enhanced Tableau data and Mulesoft RPA functionality, and a new lakehouse architecture for its CDP. We’ll have more color in the coming weeks."
They added: "Taking this to the stock, while we won’t say the FQ2 update was surprising, it was nonetheless disappointing. That said, with CRM shares trading at 23x EV/FCF on updated C2023 estimates, it feels like a lot of this was priced into the stock already. Our view is that we wouldn’t expect to see material multiple compression from these levels which, when weighed against 20%+ FCF growth next year, makes us think that CRM should still be able to at least deliver mid-teens plus stock price returns. That’s enough for a continued BUY in large cap."
In early trading in New York on Thursday, Salesforce shares were 7.7% lower at $166.08
-- Adds share price, broker comment --
Contact the author at jon.hopkins@proactiveinvestors.com