Salesforce shares dropped 18% on Thursday due to its lowest-ever revenue growth forecast, sparking concerns about high interest rates and competition from other AI offerings affecting demand.
The company might lose over $48 billion in market value if the losses continue, as it also missed its quarterly revenue expectations for the first time since 2006.
Morgan Stanley analysts noted that weak bookings in the first quarter have tested investor patience, especially as the anticipated boost from generative AI hasn’t materialized. Salesforce’s AI-focused data cloud business made up 25% of deals over $1 million in the first quarter, but this is unchanged from the previous quarter. The business was nearing $400 million in annual recurring revenue last year, but further financial details were not disclosed.
Some analysts warned that Salesforce’s forecast indicates a further slowdown in software demand in April. Barclays analysts mentioned that the selling environment worsened from the end of March and became more pronounced in April, affecting companies like Workday and Salesforce more than ServiceNow or Microsoft.
Salesforce CEO Marc Benioff mentioned the possibility of pursuing large deals to boost growth if they were beneficial and had the right metrics. However, activist investors have pressured the company to focus on profitability after years of growth through major acquisitions like the $27.7 billion purchase of Slack in 2021.
RBC analyst Rishi Jaluria noted that investors might not react well to large deals at this point, viewing them as attempts to buy growth amid slowing performance. Following the results, at least 10 brokerages lowered their price targets for Salesforce, with the lowest being $230 from D.A. Davidson.
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