If you thought this month’s wipeout in the tech market was bad, brace yourself for what could turn out to be an even bigger storm on Wednesday afternoon.
Salesforce, one of the biggest cloud software makers, is reporting its fourth quarter earnings after the bell and the company’s results could cause widespread reverberations.
While Salesforce is expected to meet Wall Street financial targets, a surprise miss or a weaker-than-expected sales forecast could roil the enterprise tech market, the way LinkedIn and Tableau did earlier this month. Soft guidance by Salesforce could suggest that corporate spending on tech is decreasing, fanning fears of a broader industry slowdown.
“Tech investors will be closely watching Salesforce’s results as a bellwether by which other high-growth tech names will react,” Stifel’s managing director Tom Roderick told Business Insider. “Their results will give us a window into another month of corporate spending intentions beyond just what we’ve heard from the December reports.”
The Street is skittish
Salesforce has been driving growth by selling more products to its existing customers, which helped the company diversify its revenue source in recent years. Aside from the Sales Cloud, which is traditionally its largest sales-driver, Salesforce is expected to show the most growth in its Service Cloud segment, which is the software used by customer service reps.
But Wall Street is skittish after a rough month of enterprise tech reports.
LinkedIn lost over 44% of its value after giving a disappointing forecast and an earnings miss, while data software maker Tableau plunged another 49% following weak forecasts earlier this month. That was enough to kill investor sentiment in tech stocks, driving the tech-heavy Nasdaq to its lowest levels since October 2014.
Salesforce, the largest cloud-only software vendor with a $40 billion market cap, saw its share price drop 20% this year alone, after reaching a record-high in early December.
Roderick said investors will particularly keep an eye out for Salesforce’s billings and deferred revenue, two metrics that reflect the change in the overall contract value the company was able to book in the past quarter. Revenue guidance and projections for future deferred revenue will also be important numbers to follow, he said.
Salesforce’s revenue is expected to grow 23.9% year-over-year to $1.79 billion in the fiscal fourth quarter, with adjusted earnings per share of 19 cents, according to street estimates. Those numbers are roughly in-line with Salesforce’s guidance of revenue between $1.78 billion to $1.79 billion, and adjusted EPS between 18 cents and 19 cents.
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