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Is Salesforce stock a 'table-pounder' after earnings sell-off? Wall Street reacts.

Salesforce stock (CRM) is taking it on the chin after a so-so quarter and outlook.

The Marc Benioff-led tech giant saw sales and margins come in ahead of analyst estimates. Salesforce's data cloud business maintained its 20% sales growth seen in the first quarter.

But the company only reiterated its full-year sales outlook, calling out more cautious spending by customers on the earnings call.

This comes following a more enthusiastic quarter from Salesforce several months ago as the company fended off an activist investor attack, cut costs to improve margins, and promoted new AI initiatives.

Shares fell 6% in early trading on Thursday. The company's ticker page was the most active on Yahoo Finance.

"Better than expected, but challenging signs of future," Guggenheim analyst John DiFucci wrote in a research note.

Wedbush analyst Dan Ives had a different take in a note of his own.

"Overall despite the head scratching knee-jerk stock weakness after hours post print, we view Salesforce as a table pounder at current levels and remains one of the most compelling software names to own in this backdrop with Benioff & Co. now on the offensive instead of the defensive," Ives contended.

Here's Yahoo Finance's checklist for Salesforce's quarter.

The earnings rundown

  • Net sales: +11% year over year to $8.25 billion vs. $8.18 billion estimate

  • Current remaining performance obligations (CRPO): $24.1 billion vs. $23.86 billion estimate

  • Adjusted operating margin: 27.6% vs. 17.6% a year ago and estimates for 25.5%

  • Adjusted diluted EPS: $1.69 vs. $0.98 last year and estimates for $1.61

The outlooks

  • Q2 sales: $8.51 billion to $8.53 billion vs. $8.49 billion estimate

  • Q2 adjusted EPS: $1.89 to $1.90 vs. $1.70 estimate

  • Full-year sales: $34.5 billion to $34.7 billion vs. $34.63 billion estimate (reiterated)

  • Full-year EPS: $7.41 to $7.43 (prior: $7.12 to $7.14) vs. $7.15 estimate

Co-founder, chairman and CEO of software company Salesforce Marc Benioff attends a session at the Congress centre during the World Economic Forum (WEF) annual meeting in Davos on January 17, 2023. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)
Co-founder, chairman, and CEO of software company Salesforce Marc Benioff attends a session at the Congress centre during the World Economic Forum (WEF) annual meeting in Davos on January 17, 2023. (Photo by FABRICE COFFRINI/AFP via Getty Images)

What else caught our attention

  • The company will hold an "AI Investor Day" on June 12.

  • CFO Amy Weaver called out sales weakness in the hi-tech and financial services sectors on the earnings call.

  • Sales in the Americas were only up 10%, in part due to demand softness in the hi-tech and financial services sectors.

  • Professional services revenue came in at $605 million, up 9% year over year, with the growth rate slowing from a 20% to 35% range in the last four quarters (as pointed out by Guggenheim's DiFucci).

  • Operating cash flow of $4.49 billion above consensus for $3.6 billion.

  • The company repurchased $2.1 billion in stock in the quarter. About $6 billion has been repurchased under a new plan announced in August 2022.

  • The AI term "GPT" was mentioned 33 times on Salesforce's earnings call.

Wall Street reacts

Citi analyst Tyler Radke (Hold rating; $230 price target):

"Salesforce earnings were solid, but may have fallen short of higher expectations. Top-line key performance indicators (cRPO and revenue) were ahead of guidance, but at a much smaller magnitude of upside (1 pt. vs. the 3-5 pt. beat last quarter) with no change to full year revenue."

"Q1 featured more headwinds than Q4 with increased attrition and some sluggishness in the U.S. (particularly in Slack + Marketing/Commerce)," Radke added. "Margins continued to outperform on restructuring tailwinds contributing to Q1 upside, while the full outlook was raised on EPS/operating cash flow. We've been impressed by the progress Salesforce has made on driving efficiency and acknowledge we've missed the 70%+ rally off 52-week lows."

"With Salesforce +68% year to date," he continued, "signs of incremental demand softness and potentially moderating margin expansion/stronger second half investments, we maintain our neutral rating."

Stifel analyst J Parker Lane (Buy rating; $250 price target):

"Salesforce shares traded off nearly 6% after the close, despite the company delivering a beat and raise across profit and cash flow metrics," Parker Lane said. "While 1Q revenue came in ahead of consensus and the company offered a healthy outlook for 2Q, the outlook for FY24 remained unchanged as a result of the uncertain macro environment impacting transactional revenue streams and the professional services business."

"Additionally, management expressed its belief that we are entering an AI 'super-cycle', that will serve as the next tech growth cycle following the rapid acceleration of digital transformation projects during COVID," the analyst added. "We believe Salesforce has displayed a solid commitment to the development and integration of leading AI technologies so far, and anticipate more clarity on the monetization path in the coming quarters."

Jefferies analyst Brent Thill (Buy rating; $250 price target):

"Salesforce delivered a solid print with CRPO [current remaining performance obligations] growth of 12%, beating Street at 11% due to core strength offset by weakness in transactional business (30-50% of bookings)," Thill wrote.

"AI was the key focus, mentioned 72 times in prepared script," he added. "Despite the $77 million first quarter top line beat, Salesforce maintained 2024 10% guidance due to professional services weakness. Salesforce raised 2024 guidance to 28% (550 basis points leverage) above estimates. The north star remains $10 plus earnings power in calendar year 2025, implying a $200-$250 stock at 20-25x."

Wedbush analyst Dan Ives (Outperform rating; $240 price target):

"AI is the name of the game for Salesforce, poker chips are on the table," Ives said. "With AI taking the world by storm, Salesforce is doubling down on the AI front regarding its product offering with the goal to integrate artificial intelligence and generative AI into numerous areas in its product base. The company launched an AI vision and is planning to revolutionize the software space, creating an intersection between AI, data, and Salesforce."

"In addition to this," Ives continued, "the company will also be integrating generative AI into Einstein, creating Einstein GPT, as well as across other products in its vast CRM portfolio. Salesforce will be hosting an AI day in NYC on June 12 which we are looking forward to attending and seeing more details around the AI vision. For now, Salesforce remains laser-focused on its expense management, core innovations, productivity improvements, and profitable growth improvements."

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com

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