“We became more strategic and more relevant to our customers because we focus on their success – and that continues today,” Salesforce co-CEO Marc Benioff says.
At least three investment firms reacted positively to Salesforce’s latest quarterly earnings, with co-CEO and co-founder Marc Benioff’s promising resilience in the face of any potential economic downturn and a changing go-to-market to reflect what companies seek from the company’s products: tools for increasing revenue and tools for decreasing costs.
“This is a time when every company, every industry, every government is investing in digital transformation,” Benioff said on an earnings call Tuesday for the quarter that ended April 30.
[RELATED: Salesforce CEOs Benioff And Taylor: We’re Recession ‘Resilient’]
“No company is better positioned than we are to help companies transform for the digital future,” he said.
Events such as the Russian invasion of Ukraine, growing inflation in the United States and the world continuing to grapple with COVID-19 have all fueled speculation of an impending recession.
In an analyst note from Wedbush, the Los Angeles-based investment firm said that Salesforce and other publicly traded technology companies appear to be defying poor economic outlooks.
“The company delivered slight top-line upside in the quarter and gave mixed guidance that was much better than the Street was fearing and will be a key shot in the arm for the tech bulls when combined with stalwarts Nvidia, Zscaler, and Palo Alto speak to cloud and cyber security pockets of demand that look relatively healthy despite fears of much darker macro,” according to Wedbush.
Salesforce’s performance also shows the remaining potential for companies switching from on-premises to cloud-based technologies.
“Our unwavering view is that the shift to the cloud is only ~40% complete with a massive digital growth wave ahead that will benefit MSFT, Amazon (AWS), Google (GCP), Salesforce (as evidenced again last night), and Oracle,” according to Wedbush.
Salesforce’s stock traded at $176.07 a share at market close Wednesday, up about 10 percent from market close Tuesday.
An analyst note from KeyBanc Capital Markets, a Cleveland-based investment firm, said that Salesforce did report some bad news, including that billings in the first fiscal year quarter missed expectations by 1 percent, current remaining performance obligation (cRPO) missed expectations by about $45 million and that the expected cRPO for the second quarter is short on expectations.
Still, Salesforce subsidiary Slack beat revenue expectation and Services Cloud beat expectations by $45 million, or 9 percent, according to KeyBanc. Sales Cloud revenue beat expectations by about $25 million, or 2 percent.
Salesforce’s expected future performance “further supports our conviction in our thesis that Salesforce is well positioned to deliver both durable revenue growth and operating margin expansion—at scale,” according to an analyst note from Swiss-based investment firm Credit Suisse.
“We reiterate our thesis that although the past 20-22 months have triggered faster change in customer-focused systems (than) ever, this pace will only increase in 2022 – driving sustained growth for the front-office software market as a whole and for Salesforce specifically,” according to the note.
Benioff encouraged the good feelings toward his company on the Tuesday call.
“We became more strategic and more relevant to our customers because we focus on their success – and that continues today,” he said. “And that‘s why we’ve been able to grow our revenue for 72 consecutive quarters – through every cycle, with a focus on customer success.”
Here’s what else Benioff had to say.
“We’re carefully watching the economic data – and all of you are doing that as well – and so far we’re just not seeing any material impact from the broader economic world that all of you are in.
Our demand environment remains very strong. And if you look over the last 23 years, Salesforce has proven to be incredibly resistant and resilient based on this incredible business model we have, and incredible technology model that we have.
We’ve been through all kinds of dot com crashes and recessions and financial crises and global pandemics and all of you have watched us go through every possible storm. But we continue to weather these storms through the power and strength of our model.
In 2001, I think, it really impacted us. We almost lost our business because we were on monthly contracts. We didn’t have the right cash flow structure. Investors just wouldn’t give us any money.
And so we made a lot of changes then. And it’s really strengthened our business and made us more durable over time. And there’s now no better measure of our durability in the business model, the momentum of the business, the strength of the technology model, than our remaining performance obligation for future revenue that we have in our contracts.”
“In Q1 we had ($)42 billion in RPO, up 20 percent year over year. Pretty amazing. And in every crisis we’ve experienced over nearly a quarter of a century, I have to tell you I think that Salesforce – I’m sure you all agree – always emerges stronger than ever. ,
We became more strategic and more relevant to our customers because we focus on their success – and that continues today. And that’s why we’ve been able to grow our revenue for 72 consecutive quarters – through every cycle with a focus on customer success.
And it’s why Salesforce remains the No. 1 CRM now for the ninth year in a row, growing its share in all CRM segments, yet again, according to the IDC software tracker. … Operating cash flow in the quarter, well, here it is, ($)3.7 billion, up 14 percent year over year. reflecting very strong performance across the core business. … Our customer relationships are amazingly strong, as evidenced by these hundreds of customers that we’ve met with just in the last couple of weeks. … I’ll tell you, these customers, they’re very excited to be able to get – not only incredible productivity from our products – but also growth as well.
So let me say that this is a time when every company, every industry, every government is investing in digital transformation. No company is better positioned than we are to help companies transform for the digital future. That was something we fully experienced in Davos (Switzerland, at the World Economic Forum annual meeting) last week. And I could not be more grateful to our 77,000 Ohana (Benioff’s nickname for the Salesforce community). Millions of Trailblazers (Salesforce users) who are making a difference for our customers and the world.”
“In an environment like this our selling strategy will change. Our narrative will change. … We’re going to focus more on how we can deliver productivity for the customer and lower their costs. And in a robust time, we talk about the top-line advancement. Of course, it’s different for every customer, you know that. … It’s incredible to see the growth of these core products.
Today, I was in a retailer that I like … (I) walked in the store and I realized that the retail agent in the store is using Sales Cloud and the platform, and I asked them, ‘ Hey, how do you like it? What do you think about the solution?’
And they have it all set in Italian and … I’m like, ‘ Wow, the product, I don’t think we ever could have imagined all the different uses that it has today,’ 24 years ago when we invented it.
And I think that that flexibility is really what continues to drive its growth. We talked about that retail use case at AT&T as well. It’s been so important for them. And, again, we never really thought that that point of sale environment would be so dramatic for that incredible product.
But when you’re working with customers in an environment like this, it really gets down to really understanding what they’re trying to do. Every customer has a slightly different solution. “
“I know we’re all watching the markets very closely and that we can see a right-sizing on a number of valuations I think that we were all quite suspect of for quite a long time.
But for us, we’ve laid our acquisition strategy down and worked on for a while. You can see that with many of these amazing companies that we acquired with MuleSoft, with Tableau, with Slack or even what I just mentioned with Commerce Cloud with Demandware.
And the reality is, there’s no finish line when it comes to these acquisitions. They’re a lot of work. They’re hard to integrate. When you think you’re done, you’re not done. They can surprise you, and you have to take your time with them. We’ve realized that right from the beginning … to today.
So I would say that for right now we’re not really looking at doing any major acquisitions. It’s just not part of our playbook right now. We’re really focused on integrating the ones that we have. We have a lot of work to do, still. And that’s our primary focus.”
“Across industry, across geography, while everyone is looking at rising inflation or supply chain issues or interest rate changes or stock market gyrations or foreign exchange shifts, at the end of the day, we all, I think, are in a very different place than we’ve really ever been before.
And I think a lot of it has to do with the pandemic. I think the pandemic gave everybody the ability to do a reset and think about, ‘ OK, now, where am I going over the next decade?’
And so, in the last two years, I think every company rebuilt their strategy. Look at us – we acquired Slack, our largest acquisition ever. We retooled, we built our CDP (Customer Data Platform). We augmented our professional services strategy. We changed our management team. We transformed who’s running the company and how it’s being run.
So we’re an example. OK, we’re ready for the next decade. And I think that that example is probably true for all the customers that we’re meeting with. “