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Earnings Results: Salesforce co-CEO Bret Taylor leaving, stock falls after lower-than-expected forecast

Salesforce Inc. performed better than expected in the third quarter, but executives issued a fourth-quarter forecast that fell short of expectations on Wednesday and revealed that co-Chief Executive Bret Taylor is leaving the company.

Salesforce
CRM,
+5.65%

shares fell as much as 6% immediately after hours, after rising about 5.5% in the regular session to close at $159.97. 

The cloud-software company said in a news release that founder, co-CEO and Chairman Marc Benioff will resume the sole CEO role on Jan. 31. Taylor is the second executive to be elevated to co-CEO with Benioff, but leave with Benioff still in charge — Keith Block stepped down in February 2020 after just 18 months in the position, and Taylor lasted exactly a year in the co-CEO position after being promoted Nov. 30 of last year.

“I am grateful for six fantastic years at Salesforce,” Taylor said in a statement. “Marc was my mentor well before I joined Salesforce and the opportunity to partner with him to lead the most important software company in the world is career-defining. After a lot of reflection, I’ve decided to return to my entrepreneurial roots.”

At least one analyst said he didn’t see the departure coming: “Given that Mr. Taylor was assumed to be the ‘heir apparent’ at CRM, this does bring up a lot of questions in terms of the management team and frankly offsets some of the positive narrative around margins heading into CY23,” wrote Kirk Materne, analyst for Evercore ISI, in a note Wednesday.

Salesforce reported that third-quarter net income fell to $210 million, or 21 cents a share, compared with $468 million, or 47 cents a share, in the year-ago period. Adjusted for stock-based compensation and other costs, earnings were $1.40 a share. Revenue rose to $7.84 billion from $6.86 billion in the year-ago quarter.

Analysts, who have been expressing concerns about a slowdown in business-software spending, had forecast adjusted earnings of $1.22 a share on revenue of $7.83 billion, according to FactSet.

“We remain positive on the long-term outlook for Salesforce as front office applications leader,” Michael Turits, analyst for KeyBanc Capital Markets, wrote ahead of the company’s earnings report. “That said, we remain cautious regarding the near-term outlook given ongoing recession concerns, slowing cloud spend, and weaker conversations we had with a few Salesforce channels this quarter.”

Those concerns sprung up in the company’s forecast, as Salesforce executives’ guidance fell $900 million short of expectations. They expect fourth-quarter earnings of 23 cents to 25 cents a share on revenue in the range of $7.932 billion to $8.032 billion, and adjusted earnings of $1.35 to $1.37 a share. Analysts had forecast adjusted earnings of $1.44 a share on revenue of $8.94 billion.

Shares of Salesforce have declined about 37% this year. The Dow Jones Industrial Average
DJIA,
+2.18%
,
whose 30 components include Salesforce, has fallen about 5% year to date, while the S&P 500 index
SPX,
+3.09%

is down almost 15% this year.

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