Salesforce Q4 Earnings: Revenue Beat Expectations During ‘Reassess’ Moment
“We have a recession playbook,” CEO Marc Benioff said on the quarterly earnings call Wednesday. “We know how to transform the company. Well, you just saw it in the last 90 days.”
Salesforce beat revenue expectations and executives further detailed a strategy to cut down on spending and increase margins during the enterprise applications vendor’s Wednesday report for fourth fiscal quarter earnings.
Marc Benioff, CEO of San Francisco-based Salesforce, has been under pressure during the fiscal 2023 fourth quarter (ended Jan. 31) by a growing number of activist investors taking stakes in the company he co-founded.
He described a “reassess” moment for the company during the last quarter when it had to explore cost saving measures – including the announced layoffs of about 7,000 employees and a reduction in its real estate.
“We have a recession playbook,” Benioff (pictured) said on the earnings call Wednesday. “We know how to transform the company. Well, you just saw it in the last 90 days.”
Salesforce Q4 Earnings
He continued: “We‘ve never had an efficiency focus in the company before because we’ve had 24 incredible years where we‘ve had to just grow, grow, grow. There have been moments where we’ve had to pull back. ’01, ’02 – bad recession – we had to pull back. ’08, ’09, we had to pull back and reassess. We‘re kind of looking at this moment as, hey, we can reassess. This is an incredible moment. We can deliver great results.”
As part of the cost-saving measures, Salesforce executives promised no more acquisitions in the near term. Salesforce previously bought collaboration application Slack for $27.7 billion in 2021. Salesforce has gone so far as to disband its board mergers and acquisitions committee, Benioff said.
“Our goal is to make Salesforce the largest and most profitable software company in the world,” he said. “And that is what we are doing.”
Benioff continued: “As we entered our fourth quarter, we recognized that we needed to radically accelerate the transformation plan timeframe. We needed to press the hyperspace button and bring the two-year goals forward quickly and exceed them. Now.”
Cost cutting has not come at the expense of customer satisfaction, Benioff said on Wednesday’s call. As an example, customer revenue attrition was at its lowest level in Salesforce’s history.
Brian Millham, Salesforce president and chief operating officer, said that the vendor reduced its sales and success organization by 10 percent and has enlisted consulting firm Bain & Co. to help with more go-to-market, structural and operating improvements.
“We‘re also laser-focused on performance, productivity and accountability of all of our teams,” Millham said. “We’re better aligning incentives with margins, removing layers and increasing spans of control to unleash even higher performance.”
Instead of 25-plus percent margins by fiscal year 2026, the company expects an operating margin of 27 percent for the current fiscal year, not using generally accepted accounting principles (GAAP).
Salesforce expects a non-GAAP operating margin of at least 30 percent in the first quarter of fiscal year 2025.
However, Salesforce did not maintain its promise of $50 billion in revenue by fiscal year 2026 “due to the uncertain macro and currency environment,” Chief Financial Officer Amy Weaver said on the earnings call.
Some of the changes for Salesforce sales employees have included reducing onboarding of new employees to weeks from months, Millham said. Account executives also have to be in front of a customer four days a week. Executives who exclusively worked from home during the pandemic saw productivity drop.
Salespeople are also more focused on bundling different Salesforce products to increase the average selling price per salesperson and to provide more products and services to customers with fewer selling motions.
Salespeople have also been trained to talk more about how Salesforce products can help customers with time-to-value, automation, digital transformation, efficiencies and cost reductions, he said.
“We‘ve always kept productivity flat and hired more AEs (account executives) to drive our growth,” he said. “We’re going to inverse that equation going forward and think about productivity as our driver going forward.”
Salesforce has also bought into the craze around generative artificial intelligence (AI) such as the ChatGPT text-generating program and Dall-E image-generating program created by Microsoft-backed OpenAI.
In February, Benioff tweeted about a Salesforce EinsteinGPT offering that can generate leads and close deals.
On Wednesday’s call, he said that EinsteinGPT will integrate with all Salesforce cloud offerings plus its Tableau, MuleSoft and Slack subsidiaries.
“It is another way we‘re opening the door to use AI for our future and for all of our customers,” Benioff said.
Customers have used Slack as the user interface for generative AI assistants, Benioff said.
“The relevance of Slack as an incredible enterprise productivity platform, user interface and critical datasets for these new AI systems. – well, it‘s inspiring all kinds of new use cases,” he said. “I couldn’t be more excited about the future.”
The growth of AI as well as the internet of things (IoT) is an opportunity for other Salesforce products, he said.
“We‘ve always been influenced by the world of AI and IoT and seeing our customers try to add in all of their intelligent devices onto our platform so they can have better relationships with their customers who are connected to them in these incredible new ways,” he said.
One of the fastest-growing products during the quarter was Salesforce’s Data Cloud, which can ingest a customer’s AI model and provide automation and analytics.
Salesforce recently deepened the integration between Data Cloud and Tableau to provide visualization for customer data, Benioff said.
Improvement For MuleSoft, Tableau
CFO Weaver cited reignited MuleSoft and Tableau licenses sales as a driver for the $8.38 billion in revenue delivered during the quarter – a 17 percent year over year increase, ignoring foreign exchange rates.
Benioff said Salesforce has “focused over the past few quarters on reigniting MuleSoft sales growth.”
During the quarter, MuleSoft was in seven of the top 10 deals of the quarter. Tableau was in all of the deals.
“These acquired products are integral to our Customer 360 and enabling our customers to use our data product line to achieve a new level of excellence in managing their customer relationships and its critical data,” Benioff said.
Shoutout To Oracle’s Larry Ellison
One of the lighter moments of Wednesday’s earnings call was Benioff expressing gratitude to his former boss, Oracle co-founder and Chief Technology Officer Larry Ellison.
Benioff worked at Oracle for about 13 years before co-founding Salesforce in 1999.
Ellison “has spent a lot of time with me giving me the Oracle playbook,” Benioff said. “And I‘m very grateful to him. He was the first person who texted me after the earnings came out today. And, I tell you, it’s good to have friends in the world when things happen. And he‘s been a great friend. And we’re executing that playbook to increase our margins. They obviously have best-in-class margins. So it‘s great to have someone on your side like that.”
Salesforce Q4 Results
For the fiscal 2023 fourth quarter (ended Jan. 31) Salesforce reported revenue of $8.38 billion, up 14 percent from $7.33 billion in the fourth quarter of fiscal 2022.
While MuleSoft and Tableau helped revenue, Salesforce’s Marketing and Commerce clouds saw weaker revenue, Weaver said.
Sales in the U.S. were measured while the United Kingdom, France and Switzerland brought “strong new business growth,” she said.
Americas revenue grew 15 percent. Europe, the Middle East and Africa (EMEA) revenue grew 20 percent ignoring foreign exchange. And Asia Pacific revenue grew 30 percent ignoring foreign exchange.
By industry, Salesforce saw “strong growth” in travel, transportation, hospitality and the public sector. Financial services and high tech were weaker.
Subscription and support revenues were $7.79 billion, up 14 percent year over year.
The company’s GAAP operating margin for the quarter was 4.3 percent. Operations generated $2.79 billion in cash, an increase of 41 percent year over year.
Free cash flow was $2.57 billion, up 42 percent year over year.
For the first quarter of the current fiscal year, Salesforce expects about $8.17 billion in revenue, up 10 percent year over year.
Salesforce Full Year Results
For the fiscal year (ended Jan. 31), Salesforce saw $31.4 billion in revenue, an increase of 22 percent year over year ignoring foreign exchange rates.
Subscription and support revenues were $29 billion, up 18 percent year over year.
The company’s GAAP operating margin for the year was 3.3 percent. Salesforce saw operating cash flow of $7.1 billion, up 19 percent year over year.
Benioff called that operating cash flow “the highest cash flow in our company‘s history, and one of the highest cash flows of any enterprise software company our size ever.”
Free cash flow was $6.3 billion, up 19 percent.
Salesforce had a current remaining performance obligation of $24 billion, up 13 percent ignoring foreign exchange rates.
Weaver credited MuleSoft sales and go-to-market execution, particularly on early renewals, with the outperformance.
For the 2024 fiscal year, Salesforce expects revenue between $34.5 billion and $34.7 billion, an increase of about 10 percent year over year. The vendor expects a GAAP operating margin of about 10.8 percent.