Customer relationship management software giant Sales Force (NASDAQ:CRM) Equities plummeted (-10%) on an optimistic Q3 2022 earnings report, but Q4 expectations were mixed. The company exceeded analysts’ expectations when its shares initially exploded, but then sank after announcing that Salesforce Co-CEO Bret Taylor would step down and Marc Benioff would resume the role of CEO and chairman. Meanwhile, colleagues like it Business Day (NYSE: WDAY) and Splunk (NASDAQ:SPLK) managed to gawk higher and rise on their earnings. The market clearly has a problem with founder Marc Benioff’s return to the helm amid fears of a return to growth acquisition strategy of the pat. In addition, the strong US dollar continued to take a toll of (-$300 million) in the quarter with an expected (-$900 million) headwind expected for fiscal full year 2023. The company has remaining performance obligations (RPO), the total contract value of which has not yet been paid, of $40 billion. The current RPO is $20 billion, which is the subscription revenue they expect to receive from existing customers in the next 12 months. The nice thing about contract-based subscription services is the visibility it provides into cash flow and its effects normalization. Investors are wondering whether the market has overreacted to the news and whether Salesforce shares are in bargain territory while acting under pre-COVID levels?
Descending price channel continues
The weekly candlestick chart for CRM shows a continuation of the descending price channel since the inverse pup breakout in August 2022 through to the $184.22 level. Stocks fell off the 20-period weekly exponential moving average (EMA), while the weekly 50-period MA resistance remained lower. The weekly market structure low (MSL) trigger forms on a break to $158.02. The weekly 20-period EMA resistance almost overlaps with the MSL trigger at $158.91, followed by the 50-period MA at $182.30. The reaction to Q3 earnings caused stocks to fall back below the 20-period EMA at nearly triple the previous week’s volume. If the swing low breaks at $136.04, pullback supports sit at $130.04, $125.12, $120.15 and $115.29.
On November 30, 2022, Salesforce announced its Q3 2023 fiscal results for October 2022. The company reported earnings per share (EPS) of $1.40 versus earnings of $1.22 according to consensus analyst estimates, a gain of $0.18. Revenues rose 14.2% year over year (YoY) to $7.84 billion, beating analyst estimates of $7.83 billion. RPO ended Q3 at approximately $40 billion, up 10% year-over-year. The gross margin remained at 70%. Salesforce Co-CEO Mark Benioff commented, “We made some great deals in the quarter with great companies like Bank of America, RBC Wealth Management, and Dell and other great stories, and I’ll get into those as well. And even as purchasing decisions gain more attention, we continue to gain market share and close large deals. IDC recently ranked Salesforce number one in CRM. And we have been doing that for nine years in a row now.”
Salesforce provided mixed guidance for Q4 2023 fiscal earnings per share of $1.35 to $1.37 versus $1.35 consensus estimates on revenues of $7.932 billion to $8.032 billion versus $8.04 billion estimates of analysts. The company expects further headwinds from the strong US dollar. However, the US dollar index has fallen from a high of $114.68 on September 28, 2022 to a recent low of $103.70, reducing performance from a high of over 16% to just 8.72% for the year .
Analysts are concerned
With Bret Taylor leaving at the end of January 2023 to pursue “entrepreneurial roots”, analysts worry that Marc Benioff will take the reins. His strategy in the past was one of acquisition after acquisition. This strategy worries analysts such as Dan Ives of Wedbush, as he felt Taylor was a mainstay of the Salesforce strategy and his departure came as a shock. He said he wouldn’t be surprised if Marc Benioff returned to his old strategy of more mergers and acquisitions in the cloud sector to fight Microsoft (NYSE: MSFT) in the cloud and business collaboration segment. Previous acquisitions include Slack, Mulesoft and Tableau. Dan Ives maintained his Outperform rating, but lowered his price target to $200 from $215 per share. Stifel analyst Parker Lane maintained his buy rating, but also lowered his price target to $175 from $185 per share.
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