Proactive Investors - Analysts at UBS see disappointing guidance from Software-as-a-Service bellwether Salesforce Inc (NYSE:CRM, ETR:FOO) dashing investor hopes for a recovery in the software sector in the second half of 2024.
“A current remaining performance obligations (cRPO) miss, guidance for a big deceleration in the second quarter and a call-out of weakening demand and booking relative to the fourth quarter will likely weigh on software sentiment and confirm fears that the overall spending backdrop year-to-date has weakened,” they wrote.
The malaise is broad, not Salesforce-specific, the analysts believe.
“We don’t see evidence of a 2H recovery,” they wrote.
“We’d also like to cite the potential that a better 4Q was more of a year-end flush rather than the start of a recovery and could have been misinterpreted and we’re still in a post-COVID rationalization of software spend, with added customer trimming due to sector-wide price increases in 2023.”
The analysts slashed their price target on Salesforce from $310 to $250 and awarded it a ‘Neutral’ rating.
Shares of Salesforce plunged more than 20% to about $215 post-earnings.
“Investors may need better 2H visibility to come back to the stock,” the analysts wrote.
Their reduced price target stems from it reducing its applied multiple from 20x to 16x.
“Our applied multiple is significantly lower than the peer group mean and median given the recent underperformance on revenue, cRPO, and the M&A overhang as well as trading closer to where Salesforce trades today,” they wrote.
“Multiples in the software sector have been moving lower after a plethora of disappointing software prints given skinny beats.”