Shares of Salesforce fall after weaker earnings and sales forecasts exceed first major share buyback plan

The executives of Salesforce Inc. cut their forecasts for the year and forecast a worse third quarter than Wall Street had expected on Wednesday, while pledging billions in share buybacks for the first time.

Salesforce CRM,
+2.28%
reported second-quarter earnings of $68 million, or 7 cents a share, on revenue of $7.72 billion, up from $6.34 billion a year ago. After adjusting for stock-based compensation and other effects, the cloud software company reported earnings of $1.19 per share, up from $1.48 per share a year ago. Analysts on average expected adjusted earnings of $1.03 a share on sales of $7.69 billion, according to FactSet.

While beating their results, Salesforce executives missed their predictions. For the third quarter, which will include the annual Dreamforce conference in September — a major driver of revenue for the company — Salesforce executives guided for adjusted earnings of $1.20 per share to $1.21 per share on sales of 7, 82 to $7.83 billion. Analysts on average had modeled adjusted third-quarter earnings of $1.28 a share on revenue of $8.07 billion, according to FactSet.

For the full year, Salesforce executives cut their full-year forecast, which now calls for adjusted earnings of $4.71 to $4.73 a share on sales of $30.9 billion to $31 billion, after reporting a 4.74 to 4, $76 per share on revenue of $31.7 billion to $31.8 billion for three months prior. Executives slightly cut their annual revenue guidance three months ago, but raised their guidance for adjusted earnings.

Shares fell more than 4% in after-hours trading on Wednesday immediately after the results were announced, having closed up 2.6% at $180.62.

Analysts had expected continued concerns about business spending and other issues, such as a strengthening dollar, to prevent Salesforce from raising its guidance.

“While we expect solid F2Q results, we believe that Salesforce will take the approach that other software companies have taken, that a ‘beat and meet’ or ‘beat and low’ is much more likely than a ‘beat and raise’ in top.line,” analysts at Evercore ISI wrote ahead of the earnings report, while maintaining a $250 price target on the stock.

Salesforce instituted its first major share buyback plan, committing $10 billion to buy back its own stock.

“We are excited to launch our first share repurchase program to continue delivering incredible value to our shareholders on our path to $50 billion in revenue in ’26,” co-CEO Marc Benioff said in a statement. He added during a conference call with analysts that the buyback program does not take M&A activity “off the table.”

While cloud software development has continued, there are concerns for the coming months. Analysts believe businesses are looking to cut costs and push back on spending amid economic worries, and that could punish Salesforce and other software names.

“We’re seeing a more measured buying environment,” Salesforce co-CEO Bret Taylor admitted during a conference call with analysts late Wednesday.

Salesforce CFO Amy Weaver noted extended sales cycles and more levels for deal approval as the quarter ended, particularly in North America and major European markets.

Oppenheimer’s research “suggests that Salesforce remains a long-term market share gainer for enterprises, but that near-term enterprise spending plans for Salesforce and in general are under pressure from macroeconomic uncertainty,” analysts wrote late last week in a earnings preview. report, while maintaining an Outperform rating and $240 price target. “Development investments for digital transformation are rising in priority as growth becomes harder to find, but businesses are also streamlining operating cost structures, which is lengthening sales cycles.”

Salesforce stock is down 28.8% so far this year, as the Dow Jones Industrial Average DJIA,
+0.18%
— which counts Salesforce as one of its 30 components — is down 9.4% and the S&P 500 SPX,
+0.29%
has fallen 13.4%.

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