00:00Salesforce in focus as well, under surveillance this morning, a major software slump.
00:05Software companies understand AI better than anybody else.
00:10Software companies don't sell software, they sell services.
00:13Software is a cost for them, and that cost is now going down very substantially
00:19because AI is the best at writing code.
00:23And so they actually have an opportunity to increase margins even further.
00:27It's just the market's ignoring that right now.
00:30So here's the latest this morning.
00:31A soft outlook from Salesforce sending the stock lower and fueling investor concerns in the sector.
00:36Greg Moskowitz of Mizzouo lowering his price target, but remaining optimistic writing the following.
00:41We see a high likelihood of organic revenue re-acceleration
00:44and believe Salesforce remains committed to profitable growth.
00:48Greg joins us now for more.
00:49Greg, welcome to the program.
00:50We'll talk about the growth numbers and the outlook.
00:51I actually want to start with the buyback because this has been a lingering question
00:54for a lot of people over the sell-off of the last several months or so.
00:57Why these companies haven't stepped in and bought their own stock?
01:00And then Salesforce did it and announced a major buyback, and it's failed to underpin confidence in the name.
01:05Greg, just on that specifically, what was your reaction?
01:09Well, first of all, thank you very much for having me.
01:13It's welcome.
01:15Frankly, Salesforce is not the first company in our space that has done this, that has stepped up recently,
01:20and has just said, you know what, from our perspective, there's too much intrinsic value in the stock.
01:25We are going to put our money where our mouth is and accelerate our buyback.
01:30Now, it's a $50 billion authorization.
01:32What Salesforce has not said is how much more aggressive they will be in the near term and the medium
01:37term.
01:38So that remains to be seen, but they made it very clear yesterday that they see uncommon value in the
01:44stock here.
01:45That being said, is it enough to overcome the negative narrative that exists right now,
01:50that in that AI is going to be this disruptive force for so many software companies,
01:58or disruptive force to so many software companies?
02:01In other words, causing decelerating growth, causing more issues with SaaS-based models in particular.
02:08That narrative is very extreme right now.
02:11It's very strong.
02:12It's having an overwhelming effect on a lot of these things, including Salesforce.
02:17In my opinion, the buyback announcement is not going to be enough to offset that right now.
02:21With that in mind, Greg, as you think about the runway, the path forward, the calendar from here,
02:25how much longer, how much more time does this name need to demonstrate that they can counter that narrative?
02:32It's a terrific question, and I think, really, Jonathan, it comes down to acceleration.
02:38Now, it has been a while since we've seen accelerating growth from Salesforce.
02:41They are telling us now that they expect that will happen in the second half of this fiscal year.
02:47So we're about, you know, in our opinion, that's going to happen in Q3 of fiscal 27.
02:53So we're three-quarters away from that occurring.
02:55If that does, in fact, happen, we think then investors can start to have more confidence in this business, the
03:03durability of it.
03:05The growth algorithm starts to look a little bit better.
03:07I would also point out that their productive sales reps are up 15% year-over-year.
03:12If you go back 12 months ago, that was just flat.
03:14So Salesforce themselves is seeing more reason to invest behind these trends.
03:19The real driver is what they call Agent Force.
03:22This is their agent-based AI software.
03:26It, frankly, got off to a very slow start in calendar 2025.
03:30The last couple of quarters, and especially this one, it has really picked up.
03:33It was at $540 million in annualized recurring revenue last quarter.
03:38It's now at $800 million.
03:40So the growth is starting to compound.
03:42And in calendar 2026, we think that's going to start to have a measurable impact on the overall growth for
03:48this company.
03:49To be clear, Agent Force is a slew of autonomous AI agents that can do the whole process end-to
03:56-end, whether it's sales, service, marketing, et cetera.
04:00Greg, it feels like the profitability acceleration that people are looking for in Salesforce has to come from the expense
04:05of either human capital
04:07or in terms of gaining market share from other potential software providers.
04:12It doesn't feel like it's a winner-takes-all type of environment.
04:15Which avenue do you think will allow them to accelerate revenues?
04:19Who loses?
04:22So I agree this is certainly not a winner-take-all environment or situation as it pertains to Salesforce or
04:29the space more broadly.
04:31Now, where we see Agent Force being most applicable, certainly over the medium term, is in customer support, what they
04:40used to call their service cloud business.
04:43Secondarily, we see a real opportunity within certain aspects of Sales Cloud, which, of course, is their CRM business that
04:49they have been known for and really the roots of the company.
04:54Conversely, you mentioned marketing and commerce.
04:56That is a real pain point for Salesforce.
04:58That growth has been decelerating.
05:02We are not expecting that to pick up in calendar 2026 either.
05:06I think that's going to continue to be a thorn in the side of Salesforce.
05:10Having said that, it's also a smaller business than service cloud and sales cloud.
05:13So we still think on a net basis, you're going to see some more meaningful trends around Agent Force and
05:20what it means for the growth of this company.
05:21You sound pretty positive, and yet you lowered your price targets to $265 from $280.
05:27Why?
05:29Well, in our opinion, this was a bit of a mixed quarter, slightly underwhelming.
05:36Their CRPO, what they call current remaining performance obligations, that's Salesforce's most important metric.
05:42It was 13% on a constant currency basis, 13% year-over-year growth.
05:46That's not bad, but it was right in line with guidance.
05:49Usually, we see Salesforce do a little bit better than that.
05:51Also, their organic revenue growth was a little bit below where we at ConsenSys had expected for this quarter.
05:59So again, I'd say a little bit underwhelming, and we're being reflective of that in our price target.
06:05It does not, however, change our view of accelerating growth in 2026.
06:09And our price target, of course, does still reflect substantial upside versus where the stock is trading today.
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