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Salesforce Shares Fall as Co-CEO Steps Down: What Wall Street’s Saying

While surprised by the move by co-CEO Keith Block, most analysts viewed it as only a short-term negative.
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Salesforce reported an eventful fiscal fourth quarter on Tuesday, announcing that co-CEO Keith Block would be stepping down from his role after just 18 months, the acquisition of cloud software firm Velocity for $1.33 billion and revenue and earnings that beat expectations.

Shares were down 1.5% to $178.66 in early trading on Wednesday.

Here’s what analyst were saying:

JP Morgan (Overweight, Price Target Unchanged at $200)

Consistent with our latest partner survey, wherein partners finished 5.0% above plan on average for FQ4, salesforce exceeded its organic cRPO (backlog) growth guidance by 400bps, growing cRPO 20% y/y, implying continued strong fundamentals and driving compounding growth at scale…

Net/net, while bears might focus on the Keith Block news and yet another acquisition, we view Q4 as a strong end to the year driving consistent fundamentals and supporting the multi-year sustainable growth trajectory of ~20% at scale across multiple product lines with solid margin expansion forecasted.

-Mark R. Murphy

Deutsche Bank (Buy, Price Target Raised from $185 to $195)

We conclude that Salesforce’s financials were strong enough that the stock can power through the CEO departure (perhaps after a digestion phase). While Salesforce shares aren’t cheap at 7x FY21 revs and 35x FCF, the solid outlook and the consistent 20% growth rate still leave us BUY-rated. We’re raising our PT from $185 to $195, based on an assumed multiple of 31x our FY22 FCF estimate (up from 28x given the greater TAM opportunity as a result of the Vlocity acquisition). Downside risks include greater investment spend to even hold the ~20% growth rate and unexpected disruption from Block’s departure.

-Karl Keirstead

Wedbush (Outperform, Price Target unchanged at $217)

Salesforce delivered its biggest beat ever, about $100M above consensus revenue. Also, cRPO growth of 27% Y/Y (constant currency) was well ahead of guidance (20% Y/Y), and FY21 revenue guidance was raised by a healthy $200M, more than we expected. The acquisition of vertical CRM specialist Vlocity for $1.33B (net of cash and existing investment position)—which adds long-time software executive David Schmaier (Oracle, Siebel) to the Salesforce roster—wasn’t a big surprise and looks additive, albeit at a hefty price tag. Less positive, acquisitions put a dent in FY21 operating cash flow guidance (+20% Y/Y), and the departure of Keith Block (who is “stepping down”) from his co-CEO role was a surprise. We’re not sure what to make of this change, but perhaps it’s related to media reports that have suggested Chairman and CEO Marc Benioff is preparing for a transition to next-generation leadership.

-Steve Koenig

Oppenheimer (Outperform, Price Target unchanged at $205)

We believe F4Q was not only strong, but also indicative of Salesforce’s premier ability to capture market share and deliver attractive growth from the digital transformation wave that's permeating the worldwide enterprise market, while preserving strong cash-flow generation and margin expansion. While the executive departure announcement is a surprise and a short-term negative for the stock, we think CRM's fundamentals trend remains positive.

-Brian Schwartz

JMP (Outperform, Price Target unchanged at $191)

We maintain our Market Outperform rating and $191 price target on Salesforce after the company reported better-than-expected F4Q20 results, with non-GAAP EPS of $0.66 (consensus $0.56), on revenue of $4.85B, up 35% y/y (consensus $4.75B), and current RPO of $15.0B, up 26% y/y (consensus $14.41B)…

The two items to keep an eye on at this point are: 1) Keith Block stepping down as co-CEO, and saying “I am ready for my next chapter” in a move somewhat reminiscent of Bill McDermott stepping down at SA in October; and 2) how the rapidly developing Coronavirus epidemic might impact business at Salesforce and other software companies...

-Patrick Walravens

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