Buying The Dip In Salesforce? Redditors Warn Against Catching The Falling Knife, Give 5 Reasons It Might Be 'Dead Money'

Author: Surbhi Jain | May 31, 2024 02:53pm

Salesforce Inc (NYSE:CRM) stock witnessed a 20% stock plunge following a messy quarter with disappointing revenue and weaker guidance.

Reddit user GAMorgan- at r/stocks questioned whether the current dip in price is a buying opportunity:

Buying the dip on Salesforce?
byu/GAMorgan- instocks

Why Salesforce Might Be ‘Dead Money’

In response, user gqreader cautions against it, citing five reasons why Salesforce might be ‘dead money’.

1. Slowing Revenue Growth: Salesforce’s revenue growth has slowed to 10% year-over-year, raising questions about its valuation.
2. Competition and Saturation: Salesforce thrives in the enterprise segment. However, saturation limits further growth unless it successfully cross-sells its other products.
3. Management Focus and Share Dilution: Critics have targeted CEO Marc Benioff for being distracted and diluting shareholder value through share-based compensation.
4. Dependency on Interest Rates and Multiples: Interest rates and market multiples currently work against Salesforce’s valuation.
5. Limited Growth Potential: Salesforce’s core enterprise segment has limited growth potential as most potential prospects are already signed on, and they struggle to consistently attach their other SaaS products.

Also Read: Google’s Ex-CEO Eric Schmidt, Amazon, Salesforce Propel France’s Ambition To Be Global AI Leader

Dangers Of Catching A Falling Knife

u/gqreader highlights concerns over Salesforce’s business model, particularly its per-head fee structure. The user notes that Salesforce’s per-head fe structure could suffer as companies adopt AI and reduce their workforce, potentially leading to lower revenues for Salesforce. They also mention Salesforce’s heavy advertising spend as a potential issue, questioning the sustainability of its revenue growth.

Another user, u/Fauster, suggests that a shift in strategy towards a consumption model could explain Salesforce’s revenue miss and earnings beat, as this change might not be immediately reflected in its financials.

However, u/special-economy3030 warns against the dangers of catching a falling knife, suggesting that the stock might continue to decline.

u/gqreader echoes this sentiment, believing that Salesforce could be ‘dead money’ until its valuation aligns with its fundamental revenue growth story.

While Salesforce remains deeply entrenched in many businesses, making it challenging for them to switch CRMs, these factors warn that the stock might not be as attractive as it seems.

Read Next: Salesforce Stock Tumbled, But Many Analysts Maintain Long Term Optimism Despite Q1 Setback, Eye AI Growth

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Posted In: CRM