Salesforce stock ( NYSE:CRM ) gained 4% on Oct. 18 after activist hedge fund Starboard Value announced its investment in the cloud-based software giant.
In an interview with CNBC, Starboard’s CEO Jeff Smith said that, although Salesforce’s software is critical to many sectors, the company’s stock remains cheap owing to a “subpar combination of growth and profitability.” Smith said that Starboard had amassed a sizable investment in Salesforce but did not specify the amount.
Why Did Salesforce Stock Plummet?
Salesforce’s revenue increased 24% in fiscal 2021 (which ended in January of the next calendar year) and 25% in fiscal 2022 to $26.5 billion. However, it forecasts sales to climb just 17% this year to over $31 billion. During the company’s most recent conference call, CFO Amy Weaver ascribed the slowdown to its clients’ “more careful purchasing behavior” in the face of severe macro challenges, which “resulted in extended sales cycles, extra deal approval layers, and deal compression.”
However, Salesforce forecasts its adjusted operating margin to increase to 20.4% this year, up from 18.7% in fiscal 2022 and 17.7% in fiscal 2021. Weaver credited the company’s continued growth to “incremental efficiencies throughout the business” as economies of scale took effect.
It anticipates adjusted profits per share to fall by around 1% this year as it recovers from a large investment-related gain in fiscal 2022. Without those gains, its adjusted EPS would likely increase by more than 20%.
What Next?
Salesforce’s business seems to be in good shape, but its slowing s...
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