Salesforce stock drops on slowest revenue growth since 2010

Salesforce shares are falling after posting its slowest revenue growth since 2010 as its customers pull back on spending due to economic uncertainty.

Video Transcript

[VIDEO LOGO]

BRAD SMITH: Let's take a look at some stocks moving this Thursday morning. We start things off with Salesforce, ticker symbol CRM, their shares. They're trading lower today despite beating Wall Street's expectations on revenue and adjusted EPS. The company reported its slowest pace of quarterly revenue growth since 2010.

Salesforce also looking to pull back on its cloud spend due to economic uncertainty, I think back to that 2010 measure. That's back when I was writing research reports about Salesforce in my collegiate days. So you're taking us back there quite a bit here.

If there are three themes that I really look through, both leading up to this report and coming out of it, number 1, deal scrutiny. The company continued to talk about that customers scrutinizing every deal. And they're seeing elongated deal cycles. We expected that. Also, continue to look out for what you hear around seat count compression.

And I used to work for one of the cloud solutions company competitors back in the day. And any time you saw an economic downturn and as I did when we were working there, when I was working there, you were looking across how many of those core portfolio clients were lessening the amount of seats or at least trimming the amount of seats that they needed necessary in terms of the license tier that they were signing up for? So that, another thing. And then interestingly, you were also waiting to see what they would say on AI. And they did.

- Of course.

BRAD SMITH: They said something--

- --they have to.

BRAD SMITH: --about artificial intelligence CRM, which I mean, for someone who also used to work within the Salesforce product back in my old marketing days, that is, I think, one of the more cumbersome tasks, if you have to do a lot of data cleansing within a CRM platform. So perhaps--

- Is that fun?

BRAD SMITH: --perhaps that's work--

- I'm joking.

BRAD SMITH: Is it fun? Is it fun?

- I'm joking, Brad.

BRAD SMITH: That is funny--

- I know.

BRAD SMITH: Walking across some hot coals.

- But I mean, look, Marc Benioff has talked about this is supposedly the era of efficiency. We know what that means. And that had to do with those job cuts, and there was pushback at the time. But again, one of the issues has been slowing for Salesforce. So they've been challenged by that.

They also have the challenge of activist investors. And when you have activist investors chattering around you or that activity around you, you have to show efficiency to appease your investors, right?

BRAD SMITH: Absolutely. And for the activist campaigns that they've had to tamp down against. And it's remarkable the amount of activist campaigns that initiated two quarters ago, I believe, it was. And that's when the company really had to answer for it on that earnings call.

This time, though, it seems even as they're trying to pivot the focus towards what AI can be in their platform and where within the software and sales and all of the other different modules. It was interesting to hear about the number of clients that they're working with right now and the meetings where they're making multiple sales across modules.

And so it gives you the inclination to say that the majority of the deals that they're able to net out are at least very comprehensive. It's just a matter of where that margin growth can come forward in the future as some analysts turn a little bit more bearish here this morning after the report.

- But it is interesting because there were some good things that came out in their report. Their forecasts of earnings were better than their prior forecast. So revenue is expected to be a little bit better, around 5.5 billion. But again, not seeing it being rewarded in terms of the pre-market.

We'll see what happens when the market actually opens, if it continues to be a thumbs down once the market opens or if there's some pullback even to the hit that it's taking right now. And we are heading towards a new month on Wall Street. And sometimes, you see new money coming in at the start of a new month, I mean, June 1. We had yesterday in the month lower for May.

Jared, we talked to-- he talked about that adage, sell in May and go away. That was just the last day of May. And of course, the NASDAQ performed very well for the month with the mega cap inflows in May.

BRAD SMITH: Absolutely. And as we round out and close down May, of course, the focus here in June is out of the gate, what is the Fed going to do? I think that's what the market's really paying attention to here this morning, even as we've gotten a bevy of employment data that's coming forward--