Should I buy Salesforce shares after Q3 results?

Salesforce.com, inc. (NYSE: CRM) stock price hit a new 52-week-low this trading week, and it is important to note that Salesforce’s stock value is currently down more than 15% since the company gave a disappointing fiscal fourth-quarter revenue forecast on November 30.

The revenue growth is slowing

Salesforce is an American cloud-based software company that provides customer relationship management service and enterprise applications focused on customer service, marketing automation, analytics, and application development.

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Salesforce reported solid third-quarter results on November 30; total revenue has increased by 14.3% Y/Y to $7.84 billion, while the non-GAAP earnings per share were $1.40 (beats by $0.18).

Despite this, the company gave a disappointing fiscal fourth-quarter revenue forecast, and Salesforce’s shares dropped this week to a point not touched in almost three years.

The company’s management reported that it expects revenue to be between $7.93 billion and $8.03 billion for the fourth fiscal quarter, which is not so bad, but this revenue guidance disappointed investors.

This revenue guidance represents growth of 8% to 10% Y/Y, which is seen as weak growth and an indication that 2023 could be a challenging year.

Along with Salesforce’s earnings results and outlook, co-Chief Executive Bret Taylor said he would leave the company at the end of January.

Slack boss and co-founder Stewart Butterfield said this week that he would leave the company that Salesforce (CRM) acquired in 2021, while other Salesforce executives that have left the company in recent months include Chief Product Officer Tamar Yehoshua and Senior VP of Marketing, Brand, and Communications Jonathan Prince. Analyst Rob Oliver from the investment firm Baird said:

While we do not want to speculate on the reasoning behind these departures, we believe the recent executive turnover adds some execution risk, particularly of this magnitude.

Weak macro conditions, together with poor economic news, also negatively influenced the stock price, and potential investors should keep in mind that the weakening global economy could hit the company’s revenue growth even more.

Despite this, Salesforce is continuing to be one of the fastest-growing enterprise software companies in history, and Salesforce’s outlook looks relatively healthy despite fears of much darker macroeconomic matters.

Even with the revenue growth slowdown, Salesforce has been expanding its operating margin over the last several quarters, delivering year-over-year operating margin (GAAP) growth of 5.3%.

Salesforce will continue to benefit from long-term secular growth trends in the enterprise software market, and with a market capitalization of $129 billion, shares of this company are reasonably valued.

$160 represents the first resistance

Salesforce’s stock price has fallen more than 50% after reaching its highest level of $311,75 on November 08, 2021, and the current share price could be a good entry point for long-term investors.

If the price jumps above $160, it will signal to trade Salesforce shares, and the next target could be $180.

On the other side, if the price falls below the current support that stands at $120, it would be a strong “sell” signal, and we have the open way to $100.

Summary

Salesforce reported solid third-quarter results on November 30, but the company’s shares have fallen more than 15% since then. Despite the revenue growth slowdown, Salesforce has been expanding its operating margin over the last several quarters, and the company will continue to benefit from long-term secular growth trends in the enterprise software market.