Salesforce stock has worst day since beginning of pandemic after disappointing earnings forecast

  • Salesforce shares fell 12% on Wednesday, their steepest drop since March 2020, when pandemic concerns shocked the market.
  • On Tuesday, the company reported better-than-expected revenue and profit, but its earnings guidance for the fiscal fourth quarter trailed analysts' estimates.
  • Salesforce also announced the promotion of Bret Taylor to co-CEO, serving alongside Marc Benioff.

Salesforce shares plunged 12% on Wednesday, their steepest drop since March 2020, when concerns about the spreading Covid-19 pandemic shocked the market.

The decline followed disappointing earnings guidance for the fiscal fourth quarter, which overshadowed better-than-expected third-quarter results and Salesforce's promotion of Bret Taylor to the role of co-CEO, alongside Marc Benioff.

Salesforce said in its report that earnings per share for the December quarter will fall between 72 and 73 cents, trailing the 81-cent average estimate, according to analysts surveyed by Refinitiv. While profit missed expectations, Salesforce raised its guidance for revenue to between $7.22 billion and $7.23 billion, about in line with estimates of $7.22 billion.

Analysts at Atlantic Equities wrote in a report that Salesforce's forecast "could reflect management conservatism."

Third-quarter "results were solid," wrote the analysts, who recommend buying the stock. "However slightly disappointing guidance will give the stock a breather after a strong run over the last six months."

After Wednesday's slide, Salesforce shares are up 6.6% over the past six months, trailing the S&P 500, which is up 7.4%. The stock closed at $251.50.

On the earnings call, Salesforce executives were bullish about the fourth quarter, with revenue expected to increase 24%, helped by $285 million in sales from Slack. Salesforce's acquisition of the communications software company for more than $27 billion closed in July.

Amy Weaver, Salesforce's chief financial officer, did suggest on the call that increased costs could appear in various ways, including in travel and expenses.

"In Q4, we are expecting to see additional investments in our workforce and our growth and also some modest increased T&E expectations," Weaver said. "And that's going to cause a q-over-q decline in operating margin."

Salesforce's stock drop on Wednesday came amid growing concerns about the omicron Covid variant. U.S. health officials said on Wednesday that the U.S. has confirmed the country's first case of the new, heavily mutated coronavirus variant in California.

The last time Salesforce's stock had a worse day was March 16, 2020, when the stock plummeted 16%. On that day, U.S. stock indexes suffered their steepest drop since the crash in October 1987.

WATCH: Jim Cramer on Salesforce's downbeat forecast

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