Good Results for Salesforce but Outlook Lowered; Announces $10 Billion Buyback; FVE Cut to $240

Wide-moat Salesforce delivered upside relative to our expectations for revenue and profitability despite worsening currency headwinds and buying patterns that began to deteriorate in July, when sales cycles began to elongate and deal sizes were pressured. The company lowered its outlook for the year based on worsening currency effects and the expectation that buying behavior will not change from what it experienced in July. On the positive side, management still characterized the demand environment and new pipeline generation as solid, with an emphasis on front office digital transformation efforts, which is Salesforce’s sweet spot. The company also announced a $10 billion stock buyback program, a first for the company. Given deteriorating conditions and a more pessimistic outlook, we are reducing our estimates and cutting our fair value estimate to $240 from $305. Salesforce remains one of our top software picks and we applaud the company’s increasing focus on margins along with the new buyback program.