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Slowdown in Sales to Hurt Salesforce's (CRM) Q2 Earnings Growth
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Salesforce (CRM - Free Report) is set to announce second-quarter fiscal 2025 results on Aug 28. The Zacks Consensus Estimate of $2.35 for the company’s second-quarter non-GAAP EPS indicates a 10.9% year-over-year increase.
While the bottom-line projection might appear to be a positive indicator, the reality is more nuanced, especially when compared to (more than) 35% growth that Salesforce has consistently delivered in the past six quarters.
Slowing Sales Growth: A Critical Issue
Once a beacon of double-digit revenue growth, Salesforce is now grappling with a noticeable slowdown. In the first quarter of fiscal 2025, the company barely managed to scrape into low double-digit growth territory, a far cry from the 20% plus growth that it had regularly posted up until fiscal 2022. This isn’t just a temporary blip; it signals deeper challenges within both Salesforce and the broader market.
The root of this slowdown lies in a combination of factors. Economic uncertainties and geopolitical tensions are making businesses more cautious about their IT spending. Companies are tightening their budgets, delaying large-scale investments and scrutinizing deals more closely. Salesforce has acknowledged that its customers are now taking longer to close deals and opting for smaller, less ambitious projects.
This shift in customer behavior is particularly damaging to Salesforce’s revenue growth. The company’s Professional Services division is also seeing a decline in demand for multi-year transformation deals. In some cases, projects are being delayed or scaled back, further impacting revenue growth.
Additionally, Salesforce has shifted its strategy from aggressive expansion to focusing on margin improvement. This shift has led to significant cost-cutting measures, including layoffs, which have temporarily boosted profitability. However, these cuts have come at the expense of critical investments in sales and marketing, which are essential areas for driving future growth.
The strategy has resulted in a noticeable deceleration in Salesforce’s sales growth over recent quarters. According to our model estimates, Salesforce's revenues for the second quarter are expected to increase a mere 7.3% year over year to reach $9.23 billion. Our model projects the Subscription and Support segment to contribute approximately $8.64 billion and the Professional Services division to add $585.8 million.
This slowdown in revenue growth is not just a concern for the top line. It’s likely to have a ripple effect, dragging down Salesforce’s earnings growth as well.
Zacks Rank & Stocks to Consider
Currently, Salesforce carries a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for PayPal’s 2024 earnings has been revised 19 cents upward to $4.42 per share in the past 30 days, which suggests a year-over-year decline of 13.3%. The company has an estimated long-term earnings growth rate of 15.9%.
The Zacks Consensus Estimate for AudioEye’s 2024 earnings have been revised upward by 10 cents to 47 cents per share in the past 30 days, which calls for an increase of 327.3% on a year-over-year basis. The company has an estimated long-term earnings growth rate of 25%.
The consensus mark for Aspen Technology’s fiscal 2025 earnings has been revised upward by 10.4% to $7.43 per share over the past 30 days, which indicates a 13.8% decrease from that reported in 2023. The company has a long-term earnings growth expectation of 13.1%.
Image: Bigstock
Slowdown in Sales to Hurt Salesforce's (CRM) Q2 Earnings Growth
Salesforce (CRM - Free Report) is set to announce second-quarter fiscal 2025 results on Aug 28. The Zacks Consensus Estimate of $2.35 for the company’s second-quarter non-GAAP EPS indicates a 10.9% year-over-year increase.
While the bottom-line projection might appear to be a positive indicator, the reality is more nuanced, especially when compared to (more than) 35% growth that Salesforce has consistently delivered in the past six quarters.
Slowing Sales Growth: A Critical Issue
Once a beacon of double-digit revenue growth, Salesforce is now grappling with a noticeable slowdown. In the first quarter of fiscal 2025, the company barely managed to scrape into low double-digit growth territory, a far cry from the 20% plus growth that it had regularly posted up until fiscal 2022. This isn’t just a temporary blip; it signals deeper challenges within both Salesforce and the broader market.
The root of this slowdown lies in a combination of factors. Economic uncertainties and geopolitical tensions are making businesses more cautious about their IT spending. Companies are tightening their budgets, delaying large-scale investments and scrutinizing deals more closely. Salesforce has acknowledged that its customers are now taking longer to close deals and opting for smaller, less ambitious projects.
This shift in customer behavior is particularly damaging to Salesforce’s revenue growth. The company’s Professional Services division is also seeing a decline in demand for multi-year transformation deals. In some cases, projects are being delayed or scaled back, further impacting revenue growth.
Salesforce Inc. Price and EPS Surprise
Salesforce Inc. price-eps-surprise | Salesforce Inc. Quote
Strategic Shift: A Double-Edged Sword
Additionally, Salesforce has shifted its strategy from aggressive expansion to focusing on margin improvement. This shift has led to significant cost-cutting measures, including layoffs, which have temporarily boosted profitability. However, these cuts have come at the expense of critical investments in sales and marketing, which are essential areas for driving future growth.
The strategy has resulted in a noticeable deceleration in Salesforce’s sales growth over recent quarters. According to our model estimates, Salesforce's revenues for the second quarter are expected to increase a mere 7.3% year over year to reach $9.23 billion. Our model projects the Subscription and Support segment to contribute approximately $8.64 billion and the Professional Services division to add $585.8 million.
This slowdown in revenue growth is not just a concern for the top line. It’s likely to have a ripple effect, dragging down Salesforce’s earnings growth as well.
Zacks Rank & Stocks to Consider
Currently, Salesforce carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader technology sector are PayPal (PYPL - Free Report) , AudioEye (AEYE - Free Report) and Aspen Technology (AZPN - Free Report) , each carrying a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PayPal’s 2024 earnings has been revised 19 cents upward to $4.42 per share in the past 30 days, which suggests a year-over-year decline of 13.3%. The company has an estimated long-term earnings growth rate of 15.9%.
The Zacks Consensus Estimate for AudioEye’s 2024 earnings have been revised upward by 10 cents to 47 cents per share in the past 30 days, which calls for an increase of 327.3% on a year-over-year basis. The company has an estimated long-term earnings growth rate of 25%.
The consensus mark for Aspen Technology’s fiscal 2025 earnings has been revised upward by 10.4% to $7.43 per share over the past 30 days, which indicates a 13.8% decrease from that reported in 2023. The company has a long-term earnings growth expectation of 13.1%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.