Wednesday, February 26, 2020

Salesforce Shares Tumble Even After Record Results

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What’s happening: Salesforce.com reported stronger-than-expected fourth quarter and fiscal year results. The stock tanked despite the company delivering 35% revenue growth and raising its projections for the current fiscal year.

What happened: Shares of the cloud software titan traded down 2.5% in regular hours on Tuesday only to nosedive another 3% in after-hours trading. The stock came under pressure despite upbeat results, as the company announced the departure of co-CEO Keith Block.

Continuing its acquisition spree in the face of stiff competition, Salesforce announced plans to acquire Vlocity.

  • Salesforce reported quarterly revenue of $4.85 billion, representing a phenomenal 35% growth from the same quarter in the previous year. The figure beat expectations of $4.75 billion.
  • For the fiscal year, revenue grew 29% to $17.1 billion.
  • The company’s adjusted earnings for the fourth quarter came in at 66 cents per share, beating the consensus estimates of 56 cents per share.

Why it matters: The results were particularly healthy, as all segments contributed to Salesforce’s strong revenue growth. Subscription and support revenue grew 35%. Salesforce Platform and other revenue surged a whopping 74%. Professional services delivered 26% revenue growth.

The San Francisco, California-based company reported strong growth during Black Friday and Cyber Monday, receiving around 31.6 million commerce orders during the cyber week. Salesforce saw a jump in its CRPO (Current Remaining Performance Obligations) bookings, which include deferred revenue, order backlog and acquisitions.

Management lifted the sales guidance for the ongoing fiscal year from $21 billion to $21.1 billion. The first-quarter revenue outlook was also raised from $4.875 billion to $4.885 billion.

Investors chose to ignore these incredible figures and focus instead on concerns around the announced departure of co-CEO Keith Block, who had joined as vice chairman in 2013 and was promoted to co-CEO with Marc Benioff in 2018. Investors were not comforted by the news of Block remaining as an advisor to Marc Benioff, who will become the sole CEO.

Block is seen as a critical part of the company’s growth story, especially his initiatives in targeting different verticals and industries to significantly broaden the customer base.

Salesforce also announced plans to acquire Vlocity, a provider of cloud and mobile software, for around $1.33 billion. The deal could close as early as the second quarter. This adds to Salesforces recent purchases of Tableau Software for $15.7 billion in 2019 and of MuleSoft for $6.5 billion in 2018.

How shares have performed: The stock hit a record high on February 20, with high expectations around the quarterly earnings release. Salesforce’s shares tanked to $176.37 in extended trading yesterday. The stock has gained 11.5% over the past twelve months, almost in-line with the S&P 500 index, which is up 12%.

What to watch: Investors will look out for any news related to the Vlocity acquisition, which adds muscle as Salesforce competes with its bigger rivals like Oracle and SAP. Focus will also be on the company’s initiatives to meet its long-term revenue target of $34-$35 billion by fiscal 2024. Investors will also be keeping a close eye on the company’s performance after the departure of Block.

The Markets Today

     

Investors will be watching US stocks today, with all the major indices posting strong declines for the second consecutive day yesterday.​

Context: US stocks closed lower once again on Tuesday, after attempting to make a comeback during the start of the session. Losses became deeper during Tuesday afternoon on fears of the coronavirus impact on global economic growth.

Details: After losing more than 1,000 points on Monday, the Dow suffered a loss of around 900 points on Tuesday, after the CDC (Centers for Disease Control and Prevention) terming coronavirus as a “pandemic.”

The major indices fell after the CDC warned American citizens to prepare for possible disruption from the coronavirus, while also terming it a “pandemic.” The S&P 500 fell over 3%, while the Nasdaq 100 dipped 2.8%. The Dow index tumbled around 880 points to settle at 27,081.36.

All three major indices had set record highs this month. However, the declines have now erased all the gains made by S&P 500 and Dow year to date. The downturn in US stocks yesterday followed the decline in European and Asian markets.

There has been a rapid rise in new virus cases from Italy, Japan and Iran, with most companies issuing warnings of a profit hit. Travel stocks crashed on Tuesday as countries started imposing bans on tourists from virus-affected countries. Shares of TripAdvisor and Norwegian Cruise Line Holdings nosedived on Tuesday. The International Olympic Committee expects to cancel the Tokyo 2020 Olympics, instead of their earlier plans of postponing the event.

Why it matters: The decline in US markets is expected to deepen today, with the stock futures pointing towards a lower open this morning. After the dismal performance of US stocks in the previous sessions, all eyes are on the data releases of new home sales and State Street investor confidence index.

What to watch: The market will look at the major indices, with stock futures pointing towards a lower start again. New home sales, which fell 0.4% in December, are expected to rise 3.5% in January.

Other Markets: Most European indices closed lower on Tuesday, with the UK 100, German 30 and French 40 down 1.94%, 1.88% and 1.94%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Mexican retail sales, Brazil’s net payrolls and the US business expectations and uncertainty indexes as well as MBA's index of mortgage application activity.