Is Salesforce Stock a good deal here?

Customer relationship management software giant Salesforce (NASDAQ: CRM) Shares fell (-10%) on a bullish Q3 2022 earnings report, but Q4 guidance was mixed. The company beat analysts’ expectations as shares initially surged, then fell on news of the resignation of Salesforce co-CEO Bret Taylor and Marc Benioff taking over as CEO and chairman. . Meanwhile, peers like Business Day (NYSE: WDAY) and Splunk (NASDAQ: SPLK) managed to widen the spread and rally to their profits. The market clearly has a problem with the return of founder Marc Benioff to the helm as it fears a return to growth through the pat acquisition strategy. Additionally, the strength of the US dollar continued to take its toll (-$300 million) in the quarter with an expected headwind (-$900 million) for fiscal 2023 forecast. The company has outstanding performance obligations (RPOs), of which the total value of contracts not yet paid is $40 billion. The current RPO is $20 billion, which is the subscription revenue they expect to receive from existing customers over the next 12 months. The advantage of contract underwriting services is the visibility they provide into cash flow and the effects of normalization. Investors are wondering if the market has overreacted to the news and if Salesforce shares are in trading territory as they trade below pre-COVID levels?



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Is Salesforce Stock a good deal here?

The decline in the price channel continues

The weekly candlestick chart for CRM shows a continuation of the decline in its price channel since the reverse pup breakdown occurred in August 2022 down to the $184.22 level. Stocks fell back through the weekly 20-period exponential moving average as the weekly 50-period MA resistance continued to decline. The weekly Market Structure Low (MSL) trigger forms on a breakout at $158.02. The weekly resistance of the 20 period EMA nearly overlaps the MSL trigger at $158.91 followed by the 50 period MA at $182.30. The reaction to third-quarter earnings prompted stocks to fall back below the 20-period EMA on nearly triple the previous week’s volume. If the swing low breaks at $136.04, pullback supports lie at $130.04, $125.12, $120.15 and $115.29.

Bittersweet results

On Nov. 30, 2022, Salesforce released its fiscal 2023 third quarter results for October 2022. The company reported earnings per share (EPS) of $1.40 versus analyst consensus earnings of $1.22, i.e. a beat of 0.18 USD. Revenue rose 14.2% year-over-year (YoY) to $7.84 billion, beating analyst estimates of $7.83 billion. RPO ended the third quarter at around $40 billion, a 10% year-over-year increase. The gross margin was maintained at 70%. Salesforce Co-CEO Mark Benioff said, “We closed some amazing deals in the quarter with big companies like Bank of America, RBC Wealth Management, and Dell and other great stories, and I’m also going to touch on that in a moment as well. And even as buying decisions come under greater scrutiny, we continue to gain market share and secure landmark deals. IDC recently ranked Salesforce #1 in CRM. And now we have done this for nine consecutive years.

Mixed guidance

Salesforce released mixed guidance for Q4 2023 EPS of $1.35 to $1.37 vs. consensus estimate of $1.35 on revenue of $7.932 billion to $8.032 billion vs. $8.04 billion dollars according to analysts’ estimates. The Company expects further headwinds due to the strength of the US dollar. However, the US Dollar Index fell from a high of $114.68 on September 28, 2022 to a recent low of $103.70, reducing its performance to just 8.72% for the year, from a high more than 16%.

Analysts are worried

With Bret Taylor leaving in late January 2023 to pursue “entrepreneurial roots,” analysts fear Marc Benioff could take the reins. Its strategy in the past has been one of acquisition after acquisition. This strategy concerns analysts like Dan Ives of Wedbush because he believed that Taylor was a pillar of the Salesforce strategy and his departure came as a shock. He said it wouldn’t surprise him if Marc Benioff reverted to his old strategy of ramping up cloud M&A to battle Microsoft (NYSE: MSFT) in the cloud and business collaboration segment. Past acquisitions include Slack, Mulesoft, and Tableau. Dan Ives continued to maintain an outperform rating but lowered his price target to $200 from $215 per share. Stifel analyst Parker Lane maintained his buy rating, but also lowered his price target to $175 from $185 per share.

Salesforce is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and led by entrepreneurs.

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