Salesforce (CRM) drops after soft results, MS sees attractive valuation

Shares of Salesforce (NYSE: CRM) are down about 6.5% in pre-open Thursday after the company reported soft results for its third quarter.

CRM posted adjusted EPS of $1.40 on revenue of $7.84 billion, topping the consensus of earnings of $1.22 per share on revenue of $7.83B. Overall, revenue rose 14% year-over-year (+19% on a constant currency basis) as subscription and support revenues increased by 13% to $7.23B.

For this quarter, CRM said it expects EPS between $1.35-1.37, ahead of the consensus of $1.34. Revenue is seen increasing by less than 2% quarter-over-quarter to $7.982B (up or down $50 million), lower than the consensus of $8.02B.

For FY2023, Salesforce raised its EPS forecast to a range of $4.71-4.73 from $4.92-4.94, comfortable above the $4.74 consensus. Full-year revenue is projected in the range of $30.9-31.0B, somewhere in line with the consensus of $30.98B.

In a separate release after the close, Salesforce announced that Bret Taylor will step down as the company's Vice Chair and Co-CEO, effective January 31, 2023.

Oppenheimer analyst Brian Schwartz said CRM delivered “soft” results, suggesting both the “story and business are in transition.” Schwartz cut the price target to $185 from the prior $200 to reflect “weak F3Q bookings results.”

“The operating margin trends coupled with the departures of the Co-CEO and prior Head of Sales indicate that the business and story are transitioning to drive a more efficient operating model for higher margins and cash generation rather than faster enterprise market share gains,” the analyst said in a client note.

Morgan Stanley analyst Keith Weiss also slashed the price target as she went to $250 per share from $273, although she remains positive on the outlook for CRM stock.

“A significantly larger drop in top-line growth vs peers begs the question of whether Salesforce is seeing pressures beyond the macro. While it appears the customer base is in digestion mode NT, we remain convinced in the potential of a ~20% EPS CAGR LT, which makes the ~20X P/E multiple attractive,” Weiss wrote.

By Senad Karaahmetovic

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