Friday, May 29, 2020

Salesforce Shares Decline Despite Q1 Beat

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What’s happening: Shares of Salesforce.com Inc. declined in extended trading on Thursday, even though the CRM software leader topped expectations for its fiscal first quarter.

What happened: Due to the coronavirus impact on businesses, Salesforce allowed its clients globally to defer payments. The cloud-based business software maker also provided onetime commissions to its sales team working during the pandemic. As a result of these decisions, Salesforce was forced to lower its annual revenue and profit guidance.

Although the software maker disclosed that the CRPO (current remaining performance obligations) bookings had increased 23% to $14.5 billion, the company’s growth has been hurt, which is a major cause of concern.

Even amid this gloom, CEO Marc Benioff announced certain positive trends in the recent weeks, which could ease investor concerns.

How were the results: Although Salesforce reported revenue growth for the quarter, its profits declined. However, both metrics were ahead of expectations.

  • Revenues climbed 30% to $4.87 billion, from $3.74 billion in the same quarter last year. The figure beat the consensus estimate of $4.85 billion.
  • Net income came in at $99 million, or 11 cents per share, versus $392 million, or 49 per share, in the year-ago quarter.
  • Adjusted earnings slipped to 70 cents per share, from 93 cents per share, but surpassed the consensus view of 69 cents per share.

Why it matters: The covid-19 pandemic did not cause a significant hit to Salesforce’s top-line results as the company generated most of its revenues from contracts signed in earlier quarters. Salesforce’s revenues from the Sales Cloud segment grew 16% to $1.25 billion, while Service Cloud sales spiked 23% to $1.25 billion.

Despite slowing CRPO growth, CEO Marc Benioff indicated that deal activity had increased in the recent weeks and expressed optimism of the trend continuing. Benioff said that there had been an increase in bookings and the company had recorded strong bookings for the current quarter and fiscal 2021.

Benioff added, “I've been on more sales calls with more CEOs in the last two months than at any time in my career.”

Earlier this week, Salesforce announced a partnership with Workday Inc. The company also committed to no major job cuts for 90 days.

Management projected second-quarter adjusted earnings between 66 cents and 67 cents per share on revenues between $4.89 billion and $4.93 billion. For the full year, Salesforce cut its revenue forecast to around $20 billion, from its previous projection of $21-$21.1 billion. The guidance for adjusted profits was also lowered to between $2.93 and $2.95 per share, from between $3.16 and $3.18 per share.

How the shares responded: Salesforce’s shares plummeted 3.5% in after-hours trading on Thursday, following the release of quarterly results. The stock has gained 11.5% so far this year, outperforming the S&P 500, which has declined by 6% year to date.

What to watch: With Salesforce witnessing some healthy trends in recent weeks, investors expect the company’s to get back on its growth track soon. The company unveiled new software earlier this month to helps businesses reopen their offices safely, with software managing shifts of workers and cleaning schedules. Investors are hopeful of healthy adoption of the software as the economy gradually reopens.

The Markets Today

     

Investors will be keeping an eye of US stocks today, ahead of President Donald Trump’s news conference regarding China.

Context: US stocks closed lower on Thursday, after remaining in positive territory for most of the session. President Donald Trump’s plans to hold a news conference regarding China rattled investor optimism, pushing stocks into the negative zone in the final hour of trade.

Details: Trump’s announcement of a news conference on China reignited investor fears of tensions between the world’s two largest economies and whether they could disrupt any global economic recovery.

On the economic data front, the US announced that around 2.13 million people had filed for unemployment benefits during the latest week. The recent reading came in-line with expectations. The country’s GDP shrank by 5% in the first quarter, while orders for durable goods declined 17.2% in April.

After gaining over 210 points earlier in the session, the Dow shed 147.63 points to close at 25,400.64 on Thursday. The S&P 500 slipped 0.2% to 3,029.73, while the Nasdaq 100 declined 0.5% to 9,368.99.

Shares of Dollar General dipped around 2% despite the company exceeding estimates for the latest quarter. Abercrombie & Fitch’s stock lost 8% after the company missed expectations for the quarter and withdrew its forecast for the year.

In other news, WTI (West Texas Intermediate) crude for July gained 2.7% to close at $33.71 a barrel, after falling earlier in the session. June gold rose around 0.1% to close at $1,728.30 an ounce.

What to watch: Traders wait on tenterhooks for the US President’s news conference to gain some insight into the country’s latest move on China. Investors also await a basket of economic reports, including personal spending, personal income, goods trade balance, wholesale inventories, Chicago PMI, University of Michigan's consumer sentiment index.

Personal spending, which declined 7.5% in March, is expected to drop another 12.6% in April. Personal income is projected to decline by 6.5% in April. Analysts expect the Chicago PMI to rise to 40 in May, from a prior reading of 35.4. The University of Michigan's consumer sentiment index is likely to increase to 74 in May, from April's eight-year low of 71.8.

Investors will continue to monitor the daily coronavirus cases, with the number of infections exceeding 5,816,700 globally. The US has so far confirmed over 1,721,750 cases with around 101,610 deaths.

Other Markets: European indices were trading lower at 9am GMT, with the FTSE 100, German 30 and French 40 down by 0.9%, 1.4% and 1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

India’s foreign exchange reserves, fiscal deficit, infrastructure output and GDP annual growth rate, Russia’s money supply M2 and corporate profits, Brazil’s GDP annual growth rate and government budget value, Canada’s GDP, producer prices and government budget value as well as the US Baker Hughes crude oil rigs.