Wade Tyler Millward
Salesforce has a playbook for “operational discipline and operational excellence, especially in the face of economic headwinds,” co-founder and co-CEO Marc Benioff said on an earnings call this week.
Salesforce’s leadership is in battle mode after delivering mixed quarterly results and the upcoming surprise departure of co-CEO Bret Taylor.
Salesforce co-founder and soon-to-be sole CEO, Marc Benioff, promised analysts in the company’s earnings call this week, which covered the third quarter of Salesforce’s fiscal 2023, a quarter that ended Oct. 31. , which will continue to focus on increasing operating margins.
Don’t forget, Benioff told analysts, that San Francisco-based Salesforce, founded in 1999, has already weathered two major recessions: the dotcom crash of the early 2000s and the Great Recession of the late 2000s. of 2000.
“We’ve actually developed our own (recession-era) playbook,” Benioff said on the call. “We really wrote it all down. We talked about what was happening. We knew it would happen again. And we had to dust off some of those plans and numbers from 12, 13 years ago, 22 years ago. We have turned that playbook into gaining market share and focusing on operational discipline and operational excellence, especially in the face of economic headwinds.”
[RELATED: Salesforce’s Benioff: Economy Won’t Get ‘Any Better Anytime Soon’]
Why did Salesforce shares fall? While “the current economic situation is not as dire as it was in early 2008,” Benioff said, he has still seen Salesforce clients freeze hiring, freeze marketing spend, freeze ad spend and even cut the number of employees, even in important service roles. .
“We are not assuming that this economy will improve anytime soon,” he said. “We’re just reporting what we see with our customers, the kind of changes they make when they start to feel these headwinds. We’re following our playbook to make sure we’re well positioned to gain market share, increase our profitability, focus on our operating margin, focus on growing our revenues, and be able to continue to invest especially when the economy picks up. … Salesforce is mission critical for almost every Fortune 1000 company because every company is becoming a customer company.”
Benioff shared his thoughts on how businesses survive down economies during the call.
“Everyone knows that this is the time, during a crisis like this, when you have to focus on your customers,” he said. “If there is one thing you need to do, if there is one fundamental thing that every business needs to do to get through this, it is simply to make sure that you maintain the relationship with your customers. It’s a critical part of navigating through this moment, and you won’t be successful if you don’t stay connected with your customers.”
Salesforce shares have continued to fall since the earnings report. The stock traded at $143.25 per share on Friday afternoon Eastern time, about 10 percent lower than the closing market price on Wednesday.
Two investment banks issued positive reports on the expected performance of the company for the future.
While some third-quarter Salesforce measures fell below Wall Street expectations, including subscription and support revenue of $7.23 billion and revenue of $6.2 billion, other measures beat expectations, according to Wedbush and KeyBanc reports issued Thursday.
Measures that beat Wall Street expectations include Slack revenue of $402 million, total revenue for the quarter of $7.84 billion, services revenue of $604 million and an operating margin of 22.7 percent.
Salesforce’s focus on margins may be the result of activist investment firm Starboard Value buying a stake in the vendor, with margin improvement specifically noted by the firm.
The underperformance measures “signal a steeper than expected revenue slowdown estimated for fiscal 2024,” according to the KeyBanc report. And yet, “despite mounting macroeconomic hurdles, we continue to see long-term secular drivers for Salesforce as a leader in front office digital transformation.”
Wedbush praised Salesforce’s multi-cloud adoption with 20% year-over-year growth and seven of 13 clouds with annual recurring revenue growth above 50% during the quarter.
Although the report called Taylor’s upcoming departure a “surprise,” Benioff is “the central heart and lungs of the Salesforce story,” Wedbush said.
The report suggested that without Taylor, Benioff could become “more aggressive on M&A (M&A) in the cloud landscape as more public and private providers struggle in a softer macro context” as Salesforce grapples. its main competitor for market share in the cloud. and collaboration: Microsoft.
Benioff’s comments on the call suggested that Taylor is leaving to start a new company. Taylor joined Salesforce in 2016 with the $750 million purchase of Quip. In 2009, he sold his company FriendFeed to Facebook.
“I know you want to go create a third big company,” Benioff said. “And you can’t keep a wild-caught tiger in a cage.”
Salesforce will continue without Taylor, who leaves on January 31, Benioff said. The company relies on engineers, marketers, product managers, and geographic leaders to keep the company running.
And Benioff opened up the possibility that Taylor didn’t actually leave. In what may have been a joking moment on the call, Benioff told analysts that “until he (Taylor) walks out the door, don’t worry, I’m going to keep trying to recruit him.”