Salesforce is open to large acquisitions, but analysts have concerns

The last time Salesforce (CRM) stock saw a one-day decline of this magnitude, George W. Bush was still in the middle of his first term as president.

On Thursday, Salesforce’s fiscal first quarter results and commentary on the earnings call sent Salesforce’s stock down 20%, marking the worst day for the company’s stock since July 2004. The decline weighed on the Dow Jones Industrial Average (^DJI) during trading session after Salesforce forecast slowing sales growth in the current quarter.

Executives from the cloud software provider noted “measurable purchasing behavior” on an earnings call, with “extended deal cycles, deal compression, and high levels of budget control.”

RBC analyst Rishi Jaluria called the results a “real miss.”

“We live in difficult conditions,” Jaluria told Yahoo Finance. “I know there were some green prospects and Marc Benioff sounded really optimistic in the Q4 earnings call, but the macro environment for software is really challenging right now and I think that’s very clear.”

Amid the slowdown, some Wall Street analysts fear Salesforce could repeat its acquisition-rich history to usher in more growth.

“Without a doubt, if you look at the investment community, they don’t want any massive mergers and acquisitions within Salesforce,” CFRA analyst Angelo Zino told Yahoo Finance. “But if you look at some of the speculation externally, in recent months… it looks like Salesforce is potentially looking at M&A there to kind of revitalize the company’s growth.”

“We’ll see,” Zino added, “but I think it’s absolutely a risk for investors interested in this name.”

The San Francisco-based company’s previous purchases include its $27 billion acquisition of Slack; Tableau for $15 billion; and MuleSoft for $6 billion – to name just a few of the notable announcements over the past decade.

During the earnings call, Salesforce CEO Marc Benioff commented that the company was cautiously open to another large-scale acquisition, a change from last year when he said the company was putting multibillion-dollar deals on hold.

“We’re always looking at what the next level of innovation is,” Benioff said Wednesday. “But as we are committed to, if we are considering a large-scale acquisition, we will make sure it is non-dilutive to our customers, is incremental and… has the right metrics. We will also quickly move away from things that we are not completely confident about or that we do not trust any company we are considering.”

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In February, Salesforce acquired Spiff, a payroll management software company, for $419 million. However, the company put an end to speculation that it would acquire cloud data platform Informatica.

The broader growth push comes after companies announced massive investments in artificial intelligence, raising concerns that Salesforce could be left behind in the AI ​​boom.

“I think investors don’t want Salesforce to buy revenue growth, and investors don’t want Salesforce to buy EBITDA,” Jaluria said. “So if they were going to make a big acquisition, I think it would have to be something that made a lot of strategic sense and was very close to the core of what they do.”

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