What Happened:

Shares of customer relationship management software maker Salesforce (NYSE:CRM) fell 7.1% in the afternoon session after the Wall Street Journal reported that the company is in advanced talks to acquire data management software provider Informatica. A few years ago, after the market believed it overpaid for Slack, Salesforce seemed to signal that it would stop making large acquisitions and instead focus on growing organically and increasing its margins. This news is inconsistent with that, and the market seems to dislike the potential deal.

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What is the market telling us:

Salesforce's shares are quite volatile and over the last year have had 2 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 5 months ago, when the stock gained 7.6% on the news that the company reported third quarter results with revenue exceeding Wall Street's expectations by a narrow amount, but both current and total RPO (remaining performance obligations, a leading indicator of revenue) beat more convincingly. In addition, non-GAAP operating profit and non-GAAP EPS outperformed expectations. Free cash flow was yet another bright spot, outperforming by a large magnitude and giving the company ample firepower to invest organically or return capital to shareholders. Despite acknowledging the impact of macro trends on the business, management highlighted "green shoots" at the top of the funnel and in growth in large deal sizes. They also called out ongoing headwinds in professional services (consistent with weaker service revenues from partners this quarter), self-service, and in-period revenues. 

Looking ahead, while next quarter's revenue guidance was roughly in line, non-GAAP EPS guidance was ahead. Finally, full year fiscal 2024 guidance was raised slightly for revenue but more convincingly for operating margin, EPS, and operating cash flow, despite ongoing investments in AI and Data Cloud. Overall, the results were not perfect, but demonstrated a very solid performance.

Salesforce is up 6.8% since the beginning of the year, but at $273.53 per share it is still trading 13.7% below its 52-week high of $316.88 from February 2024. Investors who bought $1,000 worth of Salesforce's shares 5 years ago would now be looking at an investment worth $1,709.

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