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Stifel reiterated a Buy rating on Salesforce (NYSE:CRM) and raised the price target on the stock to $200.00 (from $175.00) after adjusting estimates to reflect slowing growth and expanding margins. Stifel’s expectation is that management will eventually revisit the timeline for achieving $50bn in total revenue and that recent layoffs and real estate rationalization will meaningfully pull forward the timeline for achieving 25% non-GAAP operating margins.
In late January, it was reported that activist Elliott Management was preparing to nominate multiple directors for Salesforce’s board between mid-February and mid-March. There are now five confirmed activist investors in the name, who analysts believe will continue to pressure the company to expand margins, and will potentially advocate for the divestiture of certain business lines. They believe that the announcements/moves by these activists have the potential to drive volatility in shares throughout 2023.
Total sales revenue for 2024 is now expected to grow 9.2% y/y, down from 10.1%. for 2025, estimates were cut to 10.8% y/y compared to the previous estimate of 14.6%. Non-GAAP operating margins for 2024 and 2025 were raised and are now expected to be 24% (prior estimate: 22.6%) and 25.5% (prior estimate: 24%), respectively.
They wrote in a note, “The last few months have been eventful for Salesforce, with multiple executives departing the business, an ongoing round of layoffs, and multiple activists taking stakes in the company. We expect the company’s initial FY24 (CY23) outlook will reflect a continuation of weaker growth trends, offset by a meaningful emphasis on profitability and cash flow growth as a result of the recent headcount reduction. With activists involved and the weaker macro expected to persist through much or all of the fiscal year, we see potential for Salesforce to drive further efficiencies in the business as the year progresses. With shares trading 26.8% higher YTD (vs. IGV +12.6%), it’s clear that the activist involvement and cost savings initiatives have been welcomed by investors.”
Shares of CRM are down 2.53% in mid-day trading on Friday.
