Salesforce’s Benioff: Economy Won’t Get ‘Any Better Anytime Soon’

“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.”

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[RELATED: Salesforce Co-CEO Bret Taylor To Leave Next Year]

Salesforce Earnings

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 recent 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.

Salesforce Co-CEO Taylor To Leave

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 Q3 Product Highlights

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 Q3 Results

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.