Salesforce shares tumble as soft cloud demand hurts forecasts

Salesforce logo is seen near computer motherboard in this illustration taken January 8, 2024. REUTERS/Dado Ruvic/Illustration/File Photo

(Reuters) -Salesforce forecast second-quarter profit and revenue below Wall Street estimates on Wednesday due to weak client spending on its cloud and enterprise business products, sending its shares down more than 16% after the bell.

It expects revenue between $9.20 billion and $9.25 billion compared with estimates of $9.37 billion, according to LSEG data.

Salesforce's forecast pointed to clients scaling back spending as the possibility of higher-for-longer interest rates and elevated inflation prompt them to keep costs under control.

The company guided its quarterly revenue in the single digits, the slowest pace in its history, according to analysts, indicating that the cloud firm's growth has begun to slow after years of breakneck progress.

Salesforce has been heavily investing in AI for months and integrating the technology into the workflows of its large suite of products to drive revenue and margins.

"AI initiatives will take time to come to fruition and we are now wary about whether CRM will look to go back to M&A to drive inorganic growth," said CFRA Research analyst Angelo Zino.

Salesforce has used its cash pile for acquisitions, but a push for management changes by activist investors led to increased share buybacks, focus on profit and a dismantled mergers and acquisitions committee.

The company's first-quarter adjusted earnings per share jumped 44% to $2.44, higher than expectations of $2.38.

Salesforce left its fiscal 2025 revenue forecast unchanged, but cut its operating margin expectations to 19.9% from its prior forecast of around 20.4%.

"Despite Data Cloud's promise, an uninspiring growth narrative and decelerating margin expansion have investors pumping the breaks on the global leader in application software," Third Bridge analyst Charlie Miner said.

Salesforce COO Brian Millham said the company continues to see elongated deal cycles and budget scrutiny by clients.

The company reported first-quarter revenue of $9.13 billion, higher than a year ago but below expectations of $9.18 billion.

It expects adjusted EPS between $2.34 to $2.36 per share in the second quarter, compared with estimates of $2.40.

(Reporting by Zaheer Kachwala in Bengaluru; Editing by Arun Koyyur)

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