They say a bird in the hand is worth more than one in the bush but Wall Street is often focused on the one in the bush. I’m talking about forward guidance. Snowflake (SNOW) and Salesforce (CRM) both reported 4Q23 earnings after the close Wednesday and the problem with both reports was weak revenue guidance.
SNOW guided to 22% product growth revenue this year while CRM guided to 9% total revenue growth. That compares to 36% and 69% the last two years for SNOW and 11% and 18% for CRM. The reason why SNOW is down more than 20% is that it’s much earlier in its growth cycle than CRM and priced for massive growth. Even with the disappointing guidance, SNOW still trades for 25x forward revenue. That’s a big multiple!
In acknowledgement that it is maturing, CRM announced a 40 cent quarterly dividend and increased its share buyback authorization by $10 billion. Even so, CRM is still priced like a growth stock at 31x forward EPS guidance of $9.68-$9.76.
It’s worth noting that Palo Alto Networks (PANW) was crushed last week when it lowered full year billings guidance from $10.7-$10.8 billion to $10.1-$10.2 billion – though it has recouped a lot of those losses.
Even so, cracks are starting to appear in some of the second and third tier stocks – though the indexes will mask this unless the Magnificent 7 break down.