Salesforce is poorly positioned for a recession: Sophie Lund-Yates

By:
on Dec 8, 2022
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  • Hargreaves Lansdown's Lund-Yates shares his outlook on CRM.
  • Baird also downgraded the Salesforce stock to "neutral" today.
  • Shares of the cloud company are down about 50% for the year.

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Salesforce Inc (NYSE: CRM) has been a pain for its shareholders this year. But is it going to reward them for their patience in 2023?

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Don’t hold your breath – as per Sophie Lund-Yates of Hargreaves Lansdown.

Salesforce Inc is facing a structural headwind

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Recent executive departures, including that of Bret Taylor – the Co-Chief Executive of Salesforce Inc have created risk on the execution front.

On top of that, the U.S. economy looks headed for a recession next year that tends to hit IT spend. On CNBC’s “Worldwide Exchange”, Lund-Yates noted:

Corporations’ access to cheap capital is massively reduced. Some companies will put off the big upfront costs needed to migrate onto the cloud or to boost their cloud capabilities. That’s a structural headwind.

About a week ago, Salesforce issued dovish guidance for the current quarter revenue that has so far resulted in close to a 20% hit to its stock price.

Baird also downgraded Salesforce stock today

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One of the areas within cloud computing that Lund-Yates says is relatively better positioned is cybersecurity.

Nonetheless, she doesn’t expect valuation for the likes of Salesforce stock to return to their pandemic highs at least anytime soon.

Salesforce is especially geared towards sales and marketing type software, which is exactly the corner of the economy that tends to suffer the most during economic downturns. So, certainly some big challenges ahead.

Baird analysts also downgraded shares of the software giant to “neutral” on Thursday. Despite the massive sell-off, Salesforce is still trading well above the average of its price-to-earnings multiple over the past five years.  

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