The next few months will be pivotal for Salesforce after the Q3 earnings and several other revelations in the last weeks. In early November, it was revealed that the company would she up to 1,000 jobs as it faced slowing sales and reduced profitability. The Economic Times in India claimed the losses could go as high as 2,500.
Possibly the most surprising departure is Bret Taylor, co-CEO at Salesforce. The company announced that he will step down as Co-CEO and Vice Chair from January 31st 2023. In the announcement, Taylor commented, “I am grateful for six fantastic years at Salesforce. Marc was my mentor well before I joined Salesforce, and the opportunity to partner with him to lead the most important software company in the world is career-defining. After a lot of reflection, I’ve decided to return to my entrepreneurial roots. Salesforce has never been more relevant to customers, and with its best-in-class management team and the company executing on all cylinders, now is the right time for me to step away.”
Taylor joined Salesforce as the CEO of Quip, rose rapidly through the ranks, and was instrumental in the acquisition of Slack, seen as a significant and positive move by Salesforce. Marc Benioff, co-founder, Chairman and co-CEO indicates that Taylor wants to create a third company and grow it. He should have no issue with the financial backing, with either his own money or investors, but that idea was not revealed.
For Salesforce, it means Benioff will once again become the sole CEO and Chairman of the company he founded. Is the succession plan in tatters?
Q3 results
Like many other tech stocks, the market has treated Salesforce roughly over the last few months. A year ago, the stock stood at $261.20. It is now $147 and down 8.27% at the close, falling slightly more after the close.
The results were good, though, with Benioff revealing, “We had a solid quarter with revenue of $7.84 billion, up 14% year-over-year or 19% growth in constant currency, and record operating margin. We’re grateful to our customers for their commitment, especially as we help them succeed in this challenging environment. There’s never been a more important time for our customers to connect with their customers in a whole new way.”
Cash flow was down, though, perhaps one of the factors that led to the recent cuts. Cash was down 23% year over year to $0.31 billion, and free cash flow was %0.12 billion, a decrease of 52%. While Salesforce has maintained its revenue guidance for the full year of between $30.9 to $31 billion, Benioff noted that currency exchange rates are affecting it significantly, around $900 million for the full year.
Salesforce continues to win significant brands. In Telecomms, T-Mobile for business, in Financial Services, and the Bank of America, which will extend its footprint, were highlighted in the analyst call.
The quarter also saw a return to a physical Dreamforce, the event attracted 40,000 people, down from the heights it once was, and Salesforce rolled out several announcements, including Genie, Slack canvas, Net Zero Marketplace and more
Despite the concerns of the market, there were some positive signs. Taylor noted, “Despite the economic headwinds that Marc mentioned, we had record low revenue attrition again this quarter, which is a testament to just how mission-critical Salesforce is to our customers, especially in this environment.” (Source SeekingAlpha.com)
Looking forward to fiscal 2024, Amy Weaver, CFO of Salesforce, painted a cautious picture. Currency turmoil will likely continue, and full revenue guidance will be given on the Q4 call. However, Weaver also noted, “as the leadership team, we’re continuing to take a hard look at our cost structure.” Are more savings likely? Weaver indicates that it would continue to re-evaluate its real estate portfolio, especially at lease breaks arise. As the world moves to hybrid working, it seems Salesforce will reduce the sizes of its offices, saving a substantial amount across its cost base.
Enterprise Times: What does it mean
The market has reacted badly to Bret Taylor’s loss and the job cuts. However, Weaver seems to be adopting a comprehensive review of costs at a time when every company should be doing so. Revenue continues to grow, and while currency fluctuations are impacting Salesforce revenue, the situation can have a neutral or positive impact in the future. The market is likely to rebound in time generally, and as the succession plan is settled once more, Salesforce should recover.
The revenue continues to grow on all fronts. Benioff still has an experienced leadership team around him. What will Salesforce lose when Taylor leaves, and who might he take with him? Has Benioff lost a leader that provided innovative thought? Should he replace him, and if so, with whom? Benioff will not countenance a replacement until Taylor has finally gone. He is still hoping to help him reverse the decision. That seems unlikely, but is it the easiest time to create a start-up in this economic climate? It depends on what his idea is. These are interesting times, but one suspects it is the cracks that are paper thin, and Salesforce will continue to move forward successfully.
