Salesforce open to large acquisitions, but analysts have concerns

By Stock News On May 31, 2024 12 0

The last time Salesforce (CRM) stock experienced a one-day drop of this magnitude, George W. Bush was still in his first presidential term.

On Thursday, Salesforce’s fiscal first quarter results and earnings call commentary sent shares 20% lower, making it the stock’s worst day since July 2004. The decline weighed on the Dow Jones Industrial Average (^DJI) during the trading session after Salesforce projected slowing sales growth in the current quarter.

Top executives of the cloud software vendor noted “measured buying behavior” on the earnings call, with “elongated deal cycles, deal compression, and high levels of budget scrutiny.”

RBC analyst Rishi Jaluria described the results as “a true miss.”

“This is a tough environment that we’re in,” Jaluria told Yahoo Finance. “I know there were some green shoots, and Marc Benioff sounded really bullish off the Q4 print, but the macro environment for software is just really, really tough right now, and I think that’s very clear.”

With momentum slowing, some Wall Street analysts fear Salesforce may repeat its acquisition-rich history to initiate more growth.

“Clearly, if you were to look at the investment community out there, they don’t want any type of massive M&A within Salesforce,” CFRA analyst Angelo Zino told Yahoo Finance. “But when you kind of look at some of the speculation out there in recent months, … it looks like Salesforce potentially is looking for M&A out there in order to kind of reinvigorate growth within the company.”

“We’ll see,” Zino added, “but that is absolutely a risk, I think, for investors out there for this name.”

The San Francisco-based company’s past purchases include its acquisitions of Slack, for $27 billion; Tableau, for $15 billion; and MuleSoft, for $6 billion — to name a few notable announcements in the last decade.

During the earnings call, Salesforce CEO Marc Benioff commented that the company was cautiously open to another large-scale acquisition, a shift from last year when he said that the company was pausing multibillion-dollar deals.

“We always are looking at what is the next level of innovation,” Benioff said Wednesday. “But as we’ve committed to you, if we’re looking at a large-scale acquisition, we’re going to make sure that it is not dilutive to our customers, that it’s accretive, that it … has the right metrics. And we’re also going to be quick to walk away from things that we are not totally confident in or that we don’t have the trust with whatever company that we’re looking at.”

In February, Salesforce acquired Spiff, a compensation management software company, for $419 million. However, the company also put to rest speculation that it would acquire cloud data platform Informatica.

The broader push for growth comes as companies have announced massive investments in artificial intelligence, prompting concerns that Salesforce could lag behind in the AI boom.

“I think investors do not want to see Salesforce buy revenue growth, and investors do not want to see Salesforce buying EBITDA either,” Jaluria said. “So if they were to make a big acquisition, I think it would have to be something that makes a lot of sense strategically and is very close to the core of what they do.”