What happened
Shares of Salesforce (CRM +2.80%) fell by 17.3% in December, according to data provided by S&P Global Market Intelligence.
This decline takes the customer relationship management (CRM) platform provider's shares down nearly 50% for 2022.
Image source: Getty Images.
So what
Salesforce reported a respectable set of earnings for its fiscal 2023 third quarter, which ended Oct. 31. Revenue rose 14% year over year to $7.8 billion with remaining performance obligations up 11% year over year to 20.9 billion. The operating margin also came in at 5.9%, up from just 0.6% a year ago. Free cash flow remained healthy at $120 million, albeit lower than the prior year's $250 million.
NYSE: CRM
Key Data Points
Investors were, however, spooked by Salesforce's weaker fourth-quarter guidance. Revenue was projected to come in between $7.9 billion and $8 billion, representing year-over-year growth of just 9% at its midpoint. Not only was this estimate lower than Q3 2023's growth rate, but it was also significantly lower than the fourth quarter of fiscal 2022's 26% year-over-year revenue jump. Naturally, investors are starting to worry about growth fizzling out at the company.
It didn't help that Salesforce's vice chairman and co-CEO, Bret Taylor, also announced that he will be stepping down from the company effective Jan. 31 to start a new business. In the same month, Slack's CEO Stewart Butterfield also announced his exit, two years after the instant messaging company was bought by Salesforce. These two departures further dented sentiment for the stock as investors fret over Salesforce's prospects for this year.
Now what
Earlier this week, Salesforce became the latest technology company to slash jobs after announcing that it will lay off a tenth of its employees and shutter some offices. CEO Marc Benioff admitted that the reason for doing this was because of a more challenging economic environment where customers took their time to decide on purchases. He also admitted that the firm had hired "too many people" during the pandemic and that he takes personal responsibility for the layoffs. This move will result in around $800 million to $1 billion of expenses being recorded in the fourth quarter, with the remaining $600 million to $1.1 billion to be recognized in fiscal 2024.
During its September 2022 Investor Day, Salesforce had projected a total addressable market of $290 billion by 2026 in a market that was growing at 13% per year. While this market size presents opportunities for further growth, there are significant near-term headwinds that the company needs to deal with before it can post higher growth once again.
