Salesforce Inc. is shaking up its leadership and its broader organization, and those changes carry uncertainty for its stock, according to an analyst.
Cowen & Co.’s Derrick Wood downgraded shares of Salesforce
to market perform from outperform Friday, warning of the potential for “elevated levels of disruption risk” due to a handful of executive exits as well as a plan to restructure the company.
“Combined with tougher macro conditions & our concern of CRM customer spending behavior during renewals…we expect more uneven growth execution in the quarters ahead,” he wrote. “We see these dynamics as medium-term overhangs on shares.”
Among the executives who have or will leave their current Salesforce posts are co-Chief Executive Bret Taylor, Slack CEO Stewart Butterfield, and Tableau CEO Mark Nelson. That array represents, in part, “the highest level of concurrent [executive] departures ever,” according to Wood.
The turnover comes at a tough time for Salesforce and the broader software industry. Wood notes that the company’s fourth-quarter outlook calls for growth slowing to 13% on a constant-currency basis, which he said would be the lowest level on record for Salesforce.
“Our recent checks are also flagging concerns on trends in sales productivity…and end-market demand,” he added.
He wrote of the potential for a “material contraction in customer spend during renewals (whether seat reductions or SKU [stock-keeping unit] downgrades) as customers often over-buy to get discounts, but in a slower environment this can result in unused seats/products to rationalize.”
Additionally, Wood said some customers are opting for one-year contracts so they have more flexibility, and he worries that tools like Tableau and Slack will be viewed as more of “nice-to-have” products in a budget-constrained landscape.
“We think these dynamics will weigh on growth visibility through CY23, especially given the uncertain renewal behavior & the material change likely to come around sales structures to improve efficiencies,” he wrote.
Despite the downgrade, shares of Salesforce were up 0.6% in Friday morning action. They’ve lost about a third of their value over the past 12 months, as the S&P 500
has lost 13%.