Salesforce Inc. is expected to highlight its AI products in its earnings report, but analysts cation that business spending hasn’t been as robust as expected.
Salesforce
CRM,
is scheduled to report fiscal first-quarter results Wednesday after the close of markets. The report will serve as a run-up to the company’s annual Dreamforce conference, to be held Sept. 12-14 at the Moscone Center in San Francisco.
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JPMorgan analyst Mark Murphy wrote Tuesday that while some metrics appear to have improved at Salesforce, three key metrics — performance versus plan, expected practice growth and booking expectations — have not.
“Peer results have been sluggish across front-office [software-as-a-service companies] this earnings season; and the duration of subpar Salesforce survey results has now extended to 4 consecutive quarters,” Murphy said.
Two things could help Salesforce on its outlook for the year, he said: the company’s recent price increases and a potential “faster-than-expected adoption of its premium, monetized AI products.”
Murphy has an overweight rating on the stock and a $230 price target, but he removed Salesforce from JPMorgan’s Analyst Focus List following the stock’s 60% gain on the year and a continued decline of key metrics.
Of the 51 analysts who cover Salesforce shares, 34 have buy-grade ratings, 15 have hold ratings and two have sell ratings, with an average target price of $240.48, according to FactSet data.
Wall Street analysts, on average, forecast fiscal second-quarter earnings of $1.90 per share on revenue of $8.53 billion.
Stifel analyst J. Parker Lane said he will also be focused on price increases, as well as on the impact of new products that put AI at the forefront.
“Both of these topics, alongside potential improvement in sales productivity [and] efficiency and stabilizing macro trends, are key areas of focus for investors as we flip the page to [the second half of fiscal 2024] and assess the sustainable growth rate of the business,” Lane said. “We believe Salesforce is positioned to deliver upside to margin targets … as it drives continued efficiencies across its business, while delivering slight upside to revenue.”
“While investors are seemingly on the fence about the sustainability of double-digit growth into [fiscal 2025], we believe AI momentum, pricing increases, and a normalization of deal cycles supports our outlook,” wrote Lane, who has a buy rating and a $250 price target on the stock.
Read: Salesforce dives into the AI cloud: ‘Everybody needs to become AI-first,’ says Benioff.
Jefferies analyst Brent Thill, meanwhile, said all eyes will be on margins, as his surveys and industry checks indicate the sales environment remains sluggish.
“Expectations are low for [the fiscal second quarter] due to mixed demand checks and relatively tough comps,” Thill said. “The focus will be on whether Salesforce can deliver upside to the 28% [fiscal 2024] margin guide. We expect commentary on restructuring and AI.”
He has a buy rating and a base target price of $250 on the stock.
Citi’s Tyler Radke noted it was “an interesting quarter for [Salesforce] with a heavily marketed, yet relatively underwhelming AI event in June, organizational changes and a surprise price increase announcement,” but he said his quarter-end fieldwork was “decidedly mixed.”
“While we did pick up signs of improvement in new projects, this was offset by increased concerns around renewals/shelfware (more Q3/Q4 vs. Q2) and aggressive sales tactics to pull in deals in Q2,” said Radke, who has a neutral rating and $220 target price on the shares.
