“If you need to do one thing, if there’s one critical thing that every company has to do to get through this, it’s to make sure they maintain their relationships with their customers,” co-CEO Marc Benioff said of the continued demand for Salesforce’s applications.
The upcoming departure of co-CEO Bret Taylor and weaker customer spending eating into cash flow - despite con tinued growth in core cloud products - were the key Topics of Salesforce’s latest quarterly earnings report Wednesday.
On top of that, the enterprise applications vendor’s leadership expects customers to continue to reduce buying in the near future.
“We’re not assuming that this economy gets any better anytime soon,” Salesforce co-founder and co-CEO Marc Benioff (pictured) said on the earnings call. “We’re just reporting what we see with our customers, the kinds of changes they make when they start to feel these headwinds. We are following our playbook to make sure we’re well positioned to gain market share, to increase our profitability, to focus on our operating margin, to focus on the growth of our revenue, and be able to continue to invest—especially when the economy recovers.”
[RELATED: Salesforce Co-CEO Bret Taylor To Leave Next Year]
Taylor, who announced Wednesday just before the call that he would be leaving the San Francisco-based company on Jan. 31, echoed Benioff’s sentiment.
“Even with the many successes in the quarter, we expect this increasingly challenging buying environment to continue next year,” Taylor said.
Still, the company’s leaders provided some silver linings for analysts on the call. Benioff pointed to the company’s handling of the 2001 recession and the Great Recession in the late 2000s, calling the current economic environment of high inflation “nowhere near as severe as what happened beginning in ’08.”
“Salesforce is mission-critical to nearly every Fortune 1000 company because every company is becoming a customer company,” he said. “And everyone knows that this is the time during a crisis like this that you need to focus on your customers. If you need to do one thing, if there’s one critical thing that every company has to do to get through this, it’s to make sure they maintain their relationships with their customers. It’s a critical part of navigating through this time. And you’re not going to be successful if you don’t stay connected with your customers. We’re signing transformational deals with major brands as every industry continues to digitally transform, and that continues to be perhaps the most important initiative of every company, regardless of the economic situation.”
In the uncertain economy, customers are focused on time-to-value, Taylor said. They want digital transformation projects to drive cost savings, customer satisfaction and top-line growth. And they want to consolidate platforms and vendors for less risk and more efficiency.
“Our customers are seeing, on average, an estimated 25 percent in savings in their IT costs and 26 percent increase in employee productivity using Salesforce, according to a accurate survey of more than 3,500 of our customers,” he said.
One measure of Salesforce’s importance to customers was revenue attrition, which came in below 7.5 percent for the company’s fiscal 2023 third quarter (ended Oct. 31), CFO Amy Weaver said.
“We saw an even more challenging buying environment [during the quarter] driving intense customer scrutiny on every investment dollar to ensure the highest return possible,” she said, adding that this was especially true in the U.S. and Europe and in retail, consumer goods, communications and media.
Japan proved more resilient, according to Weaver, as did the fields of energy, automotive, hospitality, travel and hospitality.
Benioff praised Taylor on the call, saying the two men “are like brothers.” Benioff said he is “extremely sad to see him go.”
“I love him very deeply,” Benioff said. “He‘s an incredible person. And one of the great joys of my company has been having him here. And I’ll tell you, for me, this has been a feeling of tremendous loss.”
Taylor expressed his gratitude to Benioff, the company and its leaders, and pledged a “smooth transition” as Salesforce closes its fiscal year.
“The past few years have been tumultuous for all of us,” Taylor said. “And I‘ve recently been reflecting on what’s truly important to me. And while there is absolutely no easy time for a transition like this, I really do feel that now is the right time for me to return to my entrepreneurial roots, particularly given the technology landscape and the economy going through such tectonic shifts. Salesforce has never been stronger, and I‘ve never been more confident in the future of the company.”
Earlier this month Gavin Patterson, Salesforce’s chief strategy officer, said he plans to leave the company as of Jan. 31, 2023.
Salesforce’s new Genie Customer Data Cloud processes more than 100 billion customer records on average every single day, Taylor said. During the holiday shopping cyber week alone, Genie ingested 1.1 trillion records and enabled 43 billion consumer engagements for Salesforce customers.
Seven of the top 10 deals in the quarter included five or more Salesforce cloud products. For individual cloud product performance, Sales Cloud revenue grew 17 percent year over year, not counting foreign exchange rates. Service Cloud revenue grew 16 percent, approaching $2 billion in the quarter.
Marketing and Commerce clouds sales grew 18 percent year over year. Marketing Cloud delivered nearly 49 billion messages during cyber week, up 21 percent year over year. The cloud has sent 1.4 trillion messages this year.
Reflecting a more measured buying environment for the customers of Salesforce users, Commerce Cloud pageviews were up 14 percent during cyber week, but orders were only up 2 percent.
The platform business, which includes Slack, grew 22 percent. Slack itself grew 46 percent year over year and handles 2.6 billion actions a day.
The Einstein artificial intelligence platform generates 194 billion predictions a day across Salesforce’s Customer 360 platform, up 57 percent year over year.
The data business, which includes MuleSoft and Tableau, grew 16 percent year over year. MuleSoft itself grew 23 percent, not counting foreign exchange. MuleSoft integration transactions reached 6.7 billion a day, up 33 percent year over year.
Tableau alone grew 9 percent year over year. Taylor said that Salesforce has put in new leadership at Tableau and developed new product integrations including revenue intelligence, an integration between Tableau and Sales Cloud.
Although he did not mention specific leadership changes, Tableau channel chief Julie Bennani left the company in October. Tableau and MuleSoft combined their partner programs with Salesforce’s and will roll out the new program to all partners starting Feb. 1.
“We‘re confident in the opportunity ahead for Tableau,” Taylor said.
FX, Spending And Investing In Partners
The strength of the U.S. dollar continued to hit Salesforce’s revenue, causing a $300 million headwind year over year for the quarter – $50 million more than Salesforce forecasted – and $900 million for the full year.
“That is our biggest surprise of the year,” Benioff said.
When asked about reaching a 25 percent operating margin, Weaver said that the quarter hit 22.7 percent due to “a disciplined approach” to sales, general and administrative costs, marketing and finance.
“We‘ve certainly driven down workforce costs by the much more measured approach to hiring that we have had this year,” she said. “We also look to our cost of goods sold and for third-party cost efficiencies. We tightly prioritized T and E [travel and expense] this year to prioritize customer-facing travel” and reduced the real estate footprint “fairly significantly.”
Published reports in early November said that Salesforce planned to lay off hundreds of employees.
When asked about investments Salesforce has made in increasing customer retention rates, Brian Milham, Salesforce president and chief operating officer, said the company has “made some strategic investments in our own services organization alongside a great ecosystem of partners as well that are driving better implementations up front, faster time to value for our customers and better results from a customer success perspective.”
Salesforce reported $7.84 billion for the fiscal 2023 third quarter (ended Oct. 31), up 19 percent not counting the impact of foreign exchange rates. Benioff called the revenue a new record.
The company’s operating cash flow was down 23 percent year over year to $310 million. Free cash flow was down 52 percent year over year to $120 million. Capital expenditures were $198 million. CFO Weaver attributed the numbers to “lower billings.”
Salesforce has a current remaining performance obligation of $20.9 billion, up 15 percent year over year.
The company predicts fiscal 2023 fourth quarter revenue of $7.9 billion to $8 billion, up 12 percent to 13 percent year over year. It predicts full year revenue of $30.9 billion to $31 billion, up 20 percent year over year.
Current remaining performance obligation should grow 10 percent year over year ignoring foreign exchange, according to the company.
The company did not provide guidance for the next fiscal year due to the uncertain economy.
Thursday morning Salesforce’s stock was trading around $145 per share, down more than 9 percent from Wednesday’s $160.25 closing price.
Shares of Salesforce (CRM 1.65%) were trading down 10% as of 12:14 p.m. ET on Thursday after the company delivered financial results that fell short of analysts' expectations.
The company reported double-digit growth in revenue, but next quarter's revenue guidance of $7.98 billion fell short of analysts' estimates calling for $8.02 billion. The lower outlook raised questions about Salesforce's competitive position.
Still, the company continues to win new customers and Boost margins, which makes the stock a compelling value after falling 43% in 2022.
Saleforces posted a revenue increase of 14% year over year, which was down from the previous quarter's 22% increase. Excluding the impact of a strengthening U.S. dollar, revenue grew 19%.
Other than foreign currency headwinds, some analysts are concerned that slowing top-line growth could indicate increasing competition. However, management noted that Salesforce continues to gain market share and sign up "great companies like Bank of America, RBC Wealth Management, and Dell Technologies," as co-CEO Marc Benioff explained.
While revenue growth is slowing, the company is seeing strong improvement on the bottom line. Adjusted operating margin reached a record 22.7% in the quarter, up almost 3 points from the year-ago quarter. Improving profitability makes the stock look cheaper as it falls and could set up great returns when market sentiment turns positive again.
One problem affecting the sentiment around the stock right now is that Salesforce is transitioning from maximizing sales growth to boosting profits. This was brought to the spotlight after the company announced Vice Chairman and co-CEO Bret Taylor will step down. It can take a while for Wall Street to come to grips with these shifts in strategy, which explains the stock's underperformance.
The improving profit outlook means the stock is now selling at an attractive price-to-earnings ratio of 26 based on next year's earnings estimates. This could be a once-in-a-decade buying opportunity for a company expected to grow earnings at an annualized rate of 19% over the next several years.
Nov 30 (Reuters) - Salesforce Inc (CRM.N) said on Wednesday that Bret Taylor would step down as co-chief executive officer in January and that co-founder Marc Benioff will become the sole CEO.
The news sent the company's shares down 7% in extended trading as investors shrugged off the annual profit raise.
Investors likely assumed that Taylor's appointment was the beginning of a long tenure as the operational CEO at Salesforce, said Steve Koenig, managing director at SMBC Nikko Securities.
"His departure raises questions about why he's leaving and how operational leadership will be divided and delegated," he added.
Taylor, who previously served as chief operating officer and chief product officer of Salesforce, became the co-CEO in November 2021.
He was a key driving force behind Salesforce's $27.7 billion takeover of workspace messaging platform Slack Technologies.
"After a lot of reflection, I've decided to return to my entrepreneurial roots," Taylor said.
A co-creator of Alphabet Inc's (GOOGL.O) Google Maps, Taylor is also credited with devising Meta Platform Inc (META.O) unit Facebook's "like" button as the social media giant's chief technology officer.
The San Francisco-based company expects annual adjusted profit per share between $4.92 and $4.94, compared with $4.71 to $4.73 forecast earlier.
Revenue for the quarter ended Oct. 31 was $7.84 billion, compared with analysts' average expectation of $7.82 billion, according to Refinitiv IBES data.
A diverse portfolio that includes its Customer 360 platform and messaging app Slack has helped Salesforce attract customers at a time when digital transformation is becoming a priority, even as businesses brace for a broader economic downturn.
The business software maker expects current-quarter revenue to be between $7.93 billion and $8.03 billion.
On an adjusted basis, it earned $1.40 per share during the third quarter, compared with estimates of $1.21.
Reporting by Tiyashi Datta in Bengaluru; Editing by Krishna Chandra Eluri and Sriraj Kalluvila
Our Standards: The Thomson Reuters Trust Principles.
Bret Taylor, co-chief executive officer of Salesforce.com Inc., right, and Marc Benioff, co-chief executive officer of Salesforce.com Inc., wear rabbit ears during a keynote at the 2022 Dreamforce conference in San Francisco, California, on Tuesday, Sept. 20, 2022.
Marlena Sloss | Bloomberg | Getty Images
Taylor's departure will leave founder Marc Benioff as the sole CEO at the tech giant.
Salesforce beat analyst estimates for third-quarter profit and revenue but said it expected between $7.9 billion to $8.03 billion in revenue in the company's fourth fiscal quarter, lower at the midpoint than analyst expectations of $8.02 billion in sales.
The company said it would take a $900 million hit in sales because of foreign currency effects. And operating cash flow fell 23% year-over-year to $313 million for the quarter.
Is "something more than macro pressuring Salesforce's growth?" Morgan Stanley analysts questioned in a note to investors. The firm lowered its Salesforce price target from $273 to $250.
The analysts said the "surprises were more negative than positive," citing Benioff's future solo CEO status, possible single-digit subscription revenue growth for fiscal year 2024 and growing margin compression.
Benioff, in an interview with CNBC's Jim Cramer, called Taylor's departure a "gut punch."
"We have to let him be free, let him go, and I understand, but I don't like it," the billionaire said on an earnings call. Taylor was appointed co-CEO and vice chair in November 2021, having previously served as president and chief operating officer.
Taylor was also chair of the board of Twitter before billionaire Elon Musk took the company private. Taylor joined Salesforce in 2016 when his startup, Quip, was acquired by Benioff's company.
Shares of Salesforce are down over 42% year-to-date.
Tech stocks have taken a nasty tumble this year, but some are doing even worse than others. Exhibit A: software giant Salesforce.
Shares of Salesforce (CRM) have plunged about 40% so far in 2022. That makes it the second-worst performer in the Dow, trailing only chip leader Intel (INTC). Salesforce (CRM) has lagged the performance of top cloud software rivals such as Microsoft (MSFT), Germany’s SAP (SAP) and Oracle (ORCL).
Salesforce isn’t really doing all that badly. In fact, the company reported sales growth of 22% from a year ago back in August, but it also cut its revenue and profit forecasts at the time.
Salesforce said it now expects earnings per share of about $1.20 to $1.21 for this quarter and sales of $7.82 billion to $7.83 billion. Analysts had been expecting earnings of $1.29 a share and revenue of nearly $8.1 billion.
So is Salesforce, led by co-CEOs Marc Benioff and Bret Taylor, due for a comeback in 2023? Or will the company remain in Wall Street’s penalty box as it absorbs and integrates a series of expensive acquisitions over the past few years?
Salesforce has spent nearly $50 billion since 2018 to buy application software company MuleSoft, data visualization software leader Tableau and workplace productivity suite Slack. The Slack deal cost Salesforce about $28 billion.
Investors will get an update on how all these deals are panning out when Salesforce reports its latest earnings after the closing bell Wednesday. Analysts are predicting that sales will be up 14% from a year ago but profits will fall slightly.
Salesforce president and chief financial officer Amy Weaver conceded during an analyst meeting in September that “we have seen increased risks and uncertainties” in accurate months. But she stressed that demand for the company’s software remains strong.
A majority of Wall Street analysts remain bullish on Salesforce. According to data from Refinitiv, 40 of the 50 analysts that cover the company have a “buy” rating on the stock. (The remaining 10 have a “hold.” There are no “sell” recommendations.)
And the consensus price target for the stock is nearly $216 a share, 40% higher than current levels.
Still, analysts are likely to have questions about what’s next for Slack under Salesforce’s ownership. Microsoft has stepped up its own competitive efforts versus Slack with its Teams product.
“Microsoft Teams continues to be the gorilla in the room, indicating that existing customers of Salesforce have been less responsive to picking up Slack,” said Daniel Morgan, senior portfolio manager with Synovus Trust Company, in a report. “Mounting competition from Teams and increasing pricing pressure create some headwinds.”
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On Dec. 22 , C3.ai's (AI -4.40%) stock closed at an all-time high of $177.47, boosting its market cap to $17 billion. At the time, many investors were dazzled by C3's stellar revenue growth and the disruptive potential of its enterprise artificial intelligence (AI) algorithms -- which can be integrated into an organization's existing software infrastructure to cut costs, optimize workflows, Boost employee safety standards, and detect fraud.
But today, C3's stock trades at about $12.50 a share with a market cap of $1.4 billion. Investors fled as its growth cooled off and its losses widened, while other red flags -- including its customer concentration issues, the hiring of three CFOs in just two years, and an abrupt shift from subscriptions to usage-based fees -- hinted at an existential crisis.
Those issues also cast doubts on the notion that C3.ai could disrupt entrenched tech giants like Salesforce (CRM 1.65%), the world's top provider of cloud-based customer relationship management (CRM) services.
C3's founder and CEO, Tom Siebel, has frequently compared his company to Salesforce, and he once even dismissed the CRM leader's integrated AI tools as "all marketing and very little technology." Yet Salesforce remains much larger than C3. It has a market cap of about $150 billion, and it's expected to generate nearly 120 times as much annual revenue as its tiny industry peer this year. So could C3 still evolve into the next Salesforce over the long term?
Siebel's previous company, Siebel Systems -- which was acquired by Oracle in 2006 -- notably created the first digital CRM platform in 1995, long before Salesforce launched its first cloud-based CRM services. However, C3 is a very different type of company and approaches the enterprise software market in a more flexible manner than Salesforce.
Whereas Salesforce locks users into its walled garden of cloud-based CRM, sales, marketing, and analytics services, C3 provides AI algorithms that can be plugged in to a wide range of software. For example, C3's CRM platform integrates its AI algorithms into Microsoft's Dynamics CRM platform and Adobe's Experience Cloud (marketing, analytics, advertising, and commerce tools) to create an AI-powered alternative to Salesforce. Alphabet's Google Cloud also integrates C3's AI algorithms into its own services. C3 even provides its AI algorithms as pre-built stand-alone applications.
C3 initially charged recurring subscriptions like Salesforce, but it pivoted to a usage-based model earlier this year. Salesforce's subscriptions are sticky, but C3's approach is more flexible and gives customers more options if they aren't willing to commit to subscription-based contracts.
Salesforce went public in 2004. Between fiscal 2005 and fiscal 2022 (which ended this January), its annual revenue soared from $176 million to $26.49 billion, representing a compound annual growth rate (CAGR) of 34.3%. It grew so rapidly for four reasons: It established a first-mover's advantage in the cloud-based CRM market, it benefited from the long-term digitization of businesses, it expanded through acquisitions, and it locked in its users with sticky services and subscriptions.
C3 doesn't boast those same strengths. It's carving out a niche market instead of establishing a mainstream one, it's building open software solutions instead of walled gardens, and it doesn't have enough cash to make big ecosystem-building acquisitions yet. It also has a customer concentration issue: It generated 30% of its revenue from a joint venture with the energy giant Baker Hughes last year -- and that crucial deal will expire in fiscal 2025.
To make matters worse, C3's growth is already cooling off. Its revenue surged 71% in fiscal 2020 (which ended in April 2020), but rose just 17% in fiscal 2021 as the pandemic disrupted the energy and industrial markets.
Its revenue grew 38% to $253 million in fiscal 2022 as those headwinds dissipated, but it anticipates just 1% to 7% growth this year as the macro headwinds prompt enterprise customers to curb their spending. By comparison, Salesforce -- which faces many of those same headwinds -- still expects its revenue to rise 17% to about $31 billion this year.
Siebel believes C3's annual revenue growth will "revert to historical annual growth rates" of over 30% in fiscal 2024 "and beyond," but that's a tall order for a company that has repeatedly missed and reduced its own guidance over the past year.
It's highly doubtful that C3 will evolve into a tech titan like Salesforce. Instead, it will likely remain a niche provider of AI algorithms that is tightly tethered to the macro-sensitive energy and industrial markets. Investors who are looking for a long-term play on the digitization and automation of businesses should simply stick with Salesforce instead of betting on a poorly diversified AI software developer like C3.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in Adobe Inc., Alphabet (A shares), and Salesforce, Inc. The Motley Fool has positions in and recommends Adobe Inc., Alphabet (A shares), Alphabet (C shares), Microsoft, and Salesforce, Inc. The Motley Fool recommends C3.ai, Inc. and recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.
Salesforce (NYSE:CRM) shares took it on the chin Thursday, and fell more than 10% as investors showed displeasure with the cloud-based business software company's outlook, and the surprise resignation of co-Chief Executive Bret Taylor.
Taylor, who had been sharing Salesforce's (CRM) top job with company founder Marc Benioff since November 2021, will officially step down at the end of January 2023. Speaking on a conference call late Wednesday, Taylor said he would return to his "entrepreneurial roots", but didn't say anything more about his plans.
Wedbush analyst Dan Ives said Taylor was "one of the mainstays in the Salesforce (CRM) strategy," and that Wall Street would view his departure as "a shocker".
With Taylor leaving Salesforce (CRM), Ives said that it wouldn't be surprising to see Benioff "potentially getting more aggressive on M&A" in the cloud sector.
"This is all about the battle versus Microsoft for market share in the cloud and collaboration space," Ives said.
Ives left his outperform rating on Salesforce's (CRM) stock unchanged, but took down his price target from $215 a share to $200.
In addition to Taylor's departure, Salesforce (CRM) also deal with negative reaction to a mixed fiscal fourth-quarter forecast. The company said it expects to earn between $1.35 to $1.37 a share, excluding one-time items, on revenue in a range of $7.93B to $8.03B. Wall Street analysts had previously forecast Salesforce (CRM) to earn $1.34 a share, on $8.03B in sales.
Stifel analyst Parker Lane called Salesforce's (CRM) fiscal fourth quarter "critical", and that the company's outlook, and larger economic dynamics "make it more challenging to provide an accurate picture" around its full fiscal year. Lane maintained his buy rating on Salesforce (CRM), but trimmed his price target to $175 a share from $185.
Along with Taylor's resignation, and Salesforce's (CRM) outlook, the company also reported third-quarter results that topped analysts' estimates.
Cestrian Capital Research said that despite Salesforce's (CRM) mixed outlook, comments from Benioff suggest he sees easier times ahead for the company.
Salesforce cofounder and co-CEO Marc Benioff speaks during the grand opening of the Salesforce Tower, the tallest building in San Francisco, Calif., Tuesday, May 22, 2018.
Karl Mondon | Bay Area News Group | Getty Images
Salesforce reported earnings and revenue on Wednesday that beat analyst expectations. It also announced that co-CEO Bret Taylor is stepping down. CEO and Salesforce co-founder Marc Benioff will the be sole person in charge of the company.
Salesforce stock fell over 6% in extended trading.
Here's how the company did versus Refinitiv consensus estimates for the quarter ending in October:
Salesforce said it expected between $7.9 billion to $8.03 billion in revenue in the company's fourth fiscal quarter, lower at the midpoint than analyst expectations of $8.02 billion in sales in the fourth quarter. The company also said it would take a $900 million hit in sales because of foreign currency effects.
Salesforce's total revenue increased 14% year-over-year. Last quarter, Salesforce trimmed its year-end estimates for both revenue and earnings, citing a weaker economic cycle. It reaffirmed those estimates on Wednesday.
Salesforce said that its operating cash flow came in at $313 million for the quarter, which was a decrease of 23% year-over-year.
Subscription and support revenue, which includes the company's flagship Sales Cloud software and comprises the majority of the company's sales, came in at $7.23 billion, which was up 13% year-over-year.
The Platform and Other category that includes Slack reported $1.51 billion in sales, an 18% increase year-over-year.
Salesforce spent $1.7 billion on share repurchases during the quarter, the company said.
The city’s largest private employer could continue to downsize its office footprint, executives said in a accurate earnings call.
Salesforce CEO Marc Benioff said there will continue to be flexibility for employees who want to work from home, while Chief Financial Officer Amy Weaver said the software company is continuing to evaluate its real estate holdings. Salesforce did not respond to a request for comment as of publication.