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Why Salesforce Stock Dropped Today

By Evan Niu, CFA – Oct 26, 2020 at 4:04PM

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Enterprise software giant SAP provides a gloomy outlook that has broad implications for the entire sector.

What happened

Shares of (CRM 0.41%) dropped by as much as 5% today after enterprise software peer SAP (SAP 1.14%) reported third-quarter results and issued a gloomy outlook going forward. As of 3:20 p.m. EDT, the stock was down 4%. The broader market is also tanking as COVID-19 cases in the U.S. have hit fresh records in recent days.

So what

SAP cut its full-year outlook due to ongoing impacts from the COVID-19 pandemic. The software giant now expects adjusted revenue of 27.2 billion to 27.8 billion euros ($32.1 billion to $32.8 billion) in 2020, down from its prior forecast of 27.8 billion euros to 28.5 billion euros ($32.8 billion to $33.7 billion).

Salesforce Tower in Dublin

Image source: Salesforce.

"The COVID-19 pandemic [ ... ] is expected to impact the demand environment, particularly in hard hit industries, through at least the first half of 2021," according to SAP. The company's previous outlook was issued in April, but much has changed since then, and some regions have been implementing fresh lockdown orders in an effort to contain the contagion, which is hurting customer demand.

Now what

SAP is a global software company. So its forecast has broad implications for the entire sector. Salesforce and SAP have long competed in the market for customer-relationship management (CRM) software, although SAP said earlier last month that it would shift its focus from mainstream customers to specific segments of the CRM market.

Salesforce's own guidance for this fiscal year calls for revenue of $20.7 billion to $20.8 billion, which would represent growth of 21% to 22%.

Evan Niu, CFA owns shares of The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

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