Salesforce Sinks 3.5% After-Hours As Guidance Slashed

Shares in Salesforce.com (CRM) pulled back 3.5% in after-hours trading on weaker-than-expected guidance due to macro uncertainty. That was despite solid results for the fiscal first quarter including Q1 Non-GAAP EPS of $0.70 ($0.01 above consensus) and GAAP EPS of $0.11 ($0.10 above consensus).

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Revenue of $4.87B, up over 30% year-over-year, also beat consensus expectations by $20M and operating cashflow came in at $1.86B.

However, F2Q total revenue guidance of $4.89–4.90B (+22% to +23% y/y) fell short of the $5.04B consensus, while EPS guidance of $0.66–0.67 was also below the $0.70 consensus.

Similarly, FY2021 guidance was revised lower for COVID-19, with total revenue lowered by ~$1.0–1.1B to ~$20.0B (vs $20.63B consensus) and EPS guidance lowered by ~$0.23 to $2.92–2.95 (vs $3.06 consensus estimate).

The guidance revisions were attributed to IT spending normalizing next year, downtick in revenue retention, shorter contract duration, and non-recurring payments in F1Q.

Following the report, Oppenheimer’s Brian Schwartz reiterated his CRM buy rating and $195 price target (8% upside potential).

“The magnitude of the revenue reduction is somewhat difficult to follow given the constructive pipeline commentary and attractive new opportunities from COVID-19 in Public Sector, Financial Services, Healthcare, and with Work.com, and does little to explain the new FY2021 revenue guidance other than assuming a higher level of conservatism” he wrote.

Nonetheless, the analyst is staying onside, concluding: “While CRM’s guidance is more cautious than peers and recovery is not expected until early FY:2022, we see decent valuation support at 7x recurring revenues.”

Indeed, the stock retains its Strong Buy Street consensus with 17 recent buy ratings, 1 hold rating and 1 sell rating. The $191 average analyst price target indicates upside potential of 5%. Shares are currently trading up 11% year-to-date. (See CRM stock analysis on TipRanks).