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According to analysts at Citi, while Salesforce’s (NYSE:) upcoming earnings results may meet expectations, there are signs that growth is likely to slow in the second half of the fiscal year.
Citi maintains a “relatively balanced view” on Salesforce’s upcoming results, acknowledging that while second-quarter estimates appear achievable, the second half of the year could present challenges.
“Partner inputs remain cautious, and we see the risk of a slowdown in the second half of the year,” analysts noted, suggesting Salesforce could struggle with tougher comparisons and less robust demand in some areas.
Specifically, Citi notes that Salesforce’s current remaining performance obligation (cRPO) estimates for Q3 and FY25 could be at risk due to “difficult comparables” from last year’s significant Amazon Web Services (AWS) deal and the impact of past price increases.
Citi’s cRPO estimates are about one point below consensus for the third quarter, reflecting these concerns.
Analysts also said recent checks with Salesforce partners revealed a “tepid, prolonged demand environment,” with companies prioritizing budget optimization.
While demand remains strong in the public sector and for specific Salesforce products like Sales Cloud and Service Cloud, interest in newer offerings like Data Cloud and Generative AI (GenAI) products has been disappointing.
“Cloud data is a lower priority with less attention and complex pricing,” Citigroup noted.
Despite these concerns, Citi raised its price target on Salesforce stock to $290, from $260, based on an updated valuation framework that takes into account the sector’s revaluation.
However, they warn that the path forward may involve weaker implementation, especially in the latter half of the fiscal year.
While Salesforce’s second-quarter results may be strong, Citi notes that investors should be prepared for a potential slowdown in growth as the company deals with the challenges ahead.
