Shares of Salesforce (CRM 1.68%) were taking a dive today after the cloud software giant posted disappointing results in its first quarter and offered underwhelming guidance.
As a result, the stock finished today's session down 19.7%.
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Salesforce comes up short
Revenue in the quarter rose 11%, but that came up short of the consensus at $9.15 billion. Subscription and support revenue rose 12% to $8.59 billion, and remaining performance obligations, a proxy for backlog, were up 10% to $26.4 billion.
On the bottom line, the company continued to benefit from recent cost cuts as it adjusted to a slower-growth cloud software environment. On a generally accepted accounting principles (GAAP) basis, its operating margin jumped 1,370 basis points to 18.7% and it reached 32.1% on an adjusted basis, up from 27.6% in the quarter a year ago.
On an adjusted basis, earnings per share jumped from $1.69 to $2.44, edging out estimates at $2.37.
Co-CEO Marc Benioff touted the opportunity in artificial intelligence (AI), saying, "We are at the beginning of a massive opportunity for our customers to connect with their customers in a whole new way with AI."
What's next for Salesforce
Demand for AI services seems to be taking away from growth in the conventional cloud software market as other cloud software companies have also reported slowing growth this week.
Looking ahead to the second quarter, Salesforce called for revenue to grow 7% to 8% to between $9.2 billion and $9.25 billion, but that was short of the consensus at $9.34 billion. The company also cut its full-year guidance for subscription and support revenue growth to slightly below 10%, and it lowered its full-year GAAP operating margin guidance to 19.9%.
It continues to expect full-year revenue to grow 8% to 9% to between $37.7 billion and $38 billion, which compares to the consensus at $37.98 billion.
Nonetheless, the guidance cuts and the weak second-quarter revenue guidance understandably spooked investors. Salesforce's valuation has fallen substantially from pandemic-era levels, but the company still needs to meet investor expectations. It didn't do that in the first quarter.
