Investors on Wall Street can be fickle beasts. Take Salesforce as an instance. When it reported earnings yesterday, the CRM giant revealed a $5.82 billion portion. Revenue rose by 20% year over year. In total income for the just-closed FY2021, the company also posted $21.25 billion, up 24 percent YoY. If that wasn’t enough, it also boosted its FY2022 outlook (for the next fiscal year) to more than $25 billion. What’s not to like about that?
Salesforce offered you higher revenue, so you want higher quarterly revenue. Check and check, you want fast growth and solid expected sales. In reality, it’s difficult to find something negative in the study. The company is performing and rising at an unprecedented pace for an enterprise of its size and maturity, and it is expected to continue to do so.
What was Wall Street’s reaction to this fantastic report? In spite of the company taking home such a promising report card, it punished the stock with the price down over 6 percent, a fairly dismal day.
So, what really is going on? It may be that investors really don’t believe that growth is sustainable or that when it purchased Slack for over $27 billion at the end of last year, the company overpaid. It might be that this week it’s just people overreacting to a cooling economy. But if investors are looking for a high-growth company, that is what Salesforce offers.
Although Slack was costly, yesterday it posted sales of over $250 million, bringing it over the $1 billion run rate with over 100 ARR customers paying over $1 million. Salesforce’s bottom line would ultimately contain those estimates.
Canaccord Genuity analyst David Hynes Jr. wrote that the response of investors to this study perplexed him. He, like me, saw a lot of benefits. But, as he put it in his note to investors, Wall Street prefered to concentrate on the negative and see “the glass half empty.”
“The stock is clearly in the show-me camp, which means it’s likely to take another couple of quarters for investors to buy into the idea that fundamentals are actually quite solid here, and that Slack was opportunistic (and yes, pricey), but not an attempt to mask suddenly deteriorating growth,” Hynes wrote.
Brad Zelnick of Credit Suisse questioned how well Salesforce will accelerate out of the pandemic-induced economic malaise during yesterday’s call with analysts, and Gavin Patterson, Salesforce’s president and chief revenue officer, said the business is ready once the world moves past the pandemic.
“And let me reassure you, we are building the capability in terms of the sales force. You’d be delighted to hear that we’re investing significantly in terms of our direct sales force to take advantage of that demand. And I’m very confident we’ll be able to meet it. So I think you’re hearing today a message from us all that the business is strong, the pipeline is strong and we’ve got confidence going into the year,” Patterson said.
But with good reason, Salesforce execs were obviously pumped up yesterday, there is still uncertainty in investor land that manifested itself in the stock starting down and remaining down all day. Salesforce would have to keep proving them wrong, as Hynes said. They should be fine as long as they keep making quarters like the one they had this week, regardless of what the naysayers on Wall Street think today.