What happened
Shares of Salesforce (NYSE: CRM) were down 6.4% as of 11:38 a.m. ET on Thursday after posting earnings results for the second quarter. Year to date, the stock is down 33%.
The No. 1 customer relationship management platform reported revenue growth consistent with historical trends. But guidance came in softer than investors expected, which might have weighed on the stock's performance today.
So what
The second-quarter numbers were solid. Revenue grew 26% year over year on a constant-currency basis. This is consistent with the level of growth Salesforce has reported over the last decade, but investors saw some warning signs of a slowdown in on the horizon.
Weakness in demand for the company's cloud-based software platform is evident in the growth of current remaining performance obligations (RPO). This metric reflects the value of the outstanding contracts the company has not fulfilled yet. RPO increased 21% year over year in the first quarter but slowed to a rate of 15% in the second quarter.
Now what
Salesforce is seeing customers take a cautious stance over the near-term direction of the economy. This is reflected in the company's guidance, where management now expects third-quarter revenue growth to decelerate to 18% year over year on a constant-currency basis.
Investors shouldn't worry about Salesforce's lower guidance. While the stock might remain underwater in the near term, the shift to digital services is a top spending priority for many companies. A temporary slowdown in growth shouldn't change the long-term investment thesis for this top software-as-a-service stock.
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John Ballard has positions in Salesforce, Inc. The Motley Fool has positions in and recommends Salesforce, Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
