(Bloomberg) — Salesforce.com Inc. shares fell the most in nearly two decades after the company forecast its weakest quarterly sales growth on record, rekindling concerns that the company may miss out on the artificial intelligence boom.
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The San Francisco-based company said in a statement on Wednesday that revenue rose 8 percent to $9.25 billion for the quarter ending in July. It was Salesforce's first quarterly revenue growth in single digits in nearly two decades as a public company. The company's shares fell 21 percent to $215.40, their biggest intraday drop since July 21, 2004.
Analysts on average were expecting revenue of $9.35 billion, according to data compiled by Bloomberg. Salesforce said profit, excluding some items, would be about $2.35 a share, also below expectations.
Read more: Salesforce Plummets as Outlook Sparks Widespread Concerns: Street Rap
The outlook raises investor concerns about Salesforce's slowing revenue growth rate over the past year as the company focuses on expanding profits. Management has touted the revenue-boosting potential of its artificial intelligence-oriented software and capabilities. The company has also ramped up share buybacks and initiated a dividend in an effort to please Wall Street.
The company's shares were up just 3.2% this year as of Wednesday's close. Many software companies have lagged others in the tech sector as the AI boom has disproportionately benefited the shares of hardware and semiconductor companies such as Nvidia and Dell Technologies. Salesforce's outlook weighed on software results on Thursday, and shares of Oracle, ServiceNow and SAP also fell. C3.ai rose on a better-than-expected revenue outlook.
“There's a question of whether a lot of the CIO's focus on AI is coming at the expense of Salesforce.com's growth,” Rishi Jhallia, an analyst at RBC Capital Markets, said in an interview on Bloomberg TV.
Chief Executive Officer Marc Benioff touted the company's recent focus on profits and the long-term potential of artificial intelligence as positives for the company. “We are extremely well-positioned to help businesses realize the potential of AI over the next decade,” Benioff said in a statement. Most analysts don't expect generative AI capabilities within Salesforce.com's applications to drive revenue until 2025 or 2026.
Salesforce's Data Cloud, which organizes information for analytics and artificial intelligence, has been a big focus for executives and investors. The division, which includes Data Cloud, MuleSoft and Tableau, grew 24% to $1.4 billion, compared with analysts' average estimate of $1.36 billion.
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Salesforce recently explored buying data-organization software maker Informatica, highlighting its investment in the product area, but the talks fell through.Some investors have pushed back against big acquisitions following Salesforce's $27 billion purchase of Slack in 2021, but “inorganic acquisitions are and always will be part of our strategy,” said Executive Vice President Mike Spencer, who declined to comment on the Informatica reports.
During a conference call after the earnings release, Benioff said the company “would consider any significant acquisition, and we would make sure it's non-dilutive to customers, it's accretive to revenue and we have the right metrics in place, and we would exit quickly on anything we don't have complete confidence in.”
Revenue rose 11% to $9.13 billion for the first quarter ended April 30. Excluding certain items, earnings were $2.44 a share. Analysts on average were expecting earnings of $2.38 a share on revenue of $9.15 billion.
Current remaining performance obligations, a measure of contracted revenue, rose 10% to $26.4 billion, below expectations. Chief Operating Officer Brian Milham said on the conference call that customers were more cautious than last quarter, buying less and waiting longer to sign new deals. “It's similar to what we saw in the first half of last year.”
As companies allocate budgets to hardware and software for generative AI, traditional giants like Salesforce.com Inc. are likely to fall victim to it, said Bloomberg Intelligence analyst Anurag Rana.
Recent earnings reports from Workday Inc. and UIPath Inc. echoed similarly pessimistic forecasts. As for software companies, “the downturn is not isolated to Salesforce but is widespread and we see no signs of recovery in the second half,” UBS analyst Karl Karstedt wrote after the results were released.
—With assistance from Ryan Vlastelica and Subrat Patnaik.
(Updates share price, transfer ranges and adds analyst comment in last three paragraphs.)
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