Salesforce.com Shares, Software Companies Stumble to Start Year

UBS Group AG analysts on Tuesday downgraded Salesforce shares to a “neutral” rating from a “buy” and lowered their price target on the stock to $265, lower than the $315 target analysts previously held on the shares. The shares, which recently traded around $232, were on track to close at their lowest level since June.

The analysts said they expected the company’s growth to temper this year and that some Salesforce customers had already started to pull back on spending. The company said in November that it expected fiscal 2023 sales growth of about 20%, down from about 24% for fiscal 2022, which ends this month.

“It seems likely that Salesforce’s organic growth will moderate in 2022,” wrote UBS analysts in a note to clients. “Given the risk of more modest growth rate upside in 2022, we conclude that these multiples are reasonable but not compelling even with an improving margin story.”

Of the 17 software companies within the S&P 500’s information technology sector, 14 have fallen this week. The broader market has kicked off the year with gains.

UBS also downgraded Adobe Inc. shares this week, forecasting lower growth in 2022. Many companies boosted software spending in 2021, the analysts said, but would likely moderate their investment in Salesforce and Adobe products in the coming year.

Adobe shares have fallen 7% this week. Intuit Inc. has dropped roughly 6%. The S&P 500 hit a record in the first few trading sessions of the year and has added 0.4% this week.

The swings in Salesforce and other software companies coincide with broader volatility in technology stocks. Investors have fled the sector to start the year, piling into shares of cyclical companies that would benefit from an improving economy. The S&P 500’s energy and financial sectors have outperformed this week, while tech has lagged behind.

The Nasdaq Composite has trailed the S&P 500 to start the year. It has fallen 1.5% in the first trading sessions of the year, while the broad stock-market index has added 0.2%. That continues a trend from last year, when the S&P 500 outperformed the Nasdaq by 5½ percentage points, the largest yearly outperformance since 2002.

Dan Morgan, a portfolio manager at Synovus Trust Co., said this outperformance signaled that people were growing more cautious about which tech stocks they are holding, especially since earnings growth for tech will likely moderate in 2022.

“The outperformance in the S&P 500 to the Nasdaq signals to me a flight to quality to proven, time-tested business models in the tech space and broader industries, and a rotation out of more aggressive businesses,” Mr. Morgan said.

Write to Gunjan Banerji at [email protected]