Resilience, relationships and relevance resonate as Salesforce revenues rise 24%

Stuart Lauchlan Profile picture for user slauchlan June 1, 2022 Audio mode
Summary:
There are tough times still underway, but they're forging a new resilience and a reset among organizations, including Salesforce itself, according to co-CEOs Benioff and Taylor.

resilience

We're carefully watching the economic data…and so far, we're just not seeing any material impact from the broader economic world.

An upbeat update from Salesforce co-CEO Marc Benioff yesterday as the firm turned in strong Q1 fiscal 23 numbers, with total revenues coming in at $7.41 billion, up 24% year-on-year, and net income of $28 million.  Other stats of note from the earnings:

  • Growth by region - 21% in the Americas to $4.971 billion; 33% in EMEA to $1.738 billion; and 24% in APAC to $708 million.
  • By cloud, Sales Cloud grew 18% year-on-year to $1.6 billion for Q1.
  • Service Cloud grew 17% year-on-year to $1.76 billion.
  • Marketing and Commerce Clouds were up 22% to $1.1 billion.
  • Data Cloud, including Mulesoft and Tableau, grew 15% to $1.0 billion.
  • Platform & Other was up 55% to $1.4 billion.
  • A 40% growth in customers spending more than $100,000 with Slack annually.
  • Customer 360 deals involving 5 or more clouds grew 21% year-over-year.
  • Customers spending more than $100,000 annually grew 45% year-on-year.

Resilience

On the post results analyst call, a lot of emphasis was placed on the resilience of Salesforce’s operating model, with Benioff pointing out that the firm has learned from past experience how to ride out a storm:

We have an incredible technology model where 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. So we made a lot of changes then, and it's really strengthened our business and made us more durable over time. 

The COVID crisis has driven change within Salesforce itself, he added, just as it has with customers:

At the end of the day, we all are in a very different place than we've really ever been before. I think a lot of it has to do with the pandemic. I think the pandemic gave everybody the ability to kind of do a reset and think about, ‘OK, now where am I going over the next decade?’. So in the last 2 years, I think every company rebuilt their strategy.

Look at us! We acquired Slack, our largest acquisition ever. We re-tooled. 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 of, ‘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.

The theme of transformation was picked up on by co-CEO Bret Taylor who cited having 30 one-on-one CEO conversations at the World Economic Forum Annual Meeting in Davos last week:

It was really pleasantly surprising to just hear how much customers are leaning into their digital investments. Some, like the consumer goods companies, have been really impacted by both the supply chain and inflation, and were really focused on how to invest in digital technologies to take down some of their costs to absorb some of that and avoid price increases.  And then…I talked to the CEO of a beauty company that has seen increased demand as we all leave the house for the first time in the past couple of years and was really focused on growth.

But the theme in all of them was, whether you're investing in digital technology to connect with your customers or investing in digital technology to drive productivity, we continue to be one of the most strategic vendors and the trusted digital advisor to all of these CEOs across every industry. So I read the same headlines as everyone else, and I'm cognizant of the volatility in the economy…We’re just focused on being relevant, being the most trusted digital advisor to each of our customers. We believe that if we form those trusted relationships, especially in times where our customers need that resilience and need that from us, we will come out of these gaining market share and gaining trust with our customers.

Relevance

Those relationships are crucial, agreed Chief Revenue Officer Gavin Patterson:

In this type of environment, the key word is relevance. Listening to your customers, understanding what the challenge -- the specific challenges they are facing and making sure that you tailor the approach to that…So I think it's about listening to the customer, it's about being relevant, understanding that actually we're going through a period now where productivity and transformation is more important than the last few quarters, and making sure that we tailor our messages accordingly.

He added: 

We've got a more strategic relationship that is more of a trusted advisor. I think that's because we have a full suite of clouds and a full Customer 360 solution that can solve multiple problems for [customers]. So if their issue is growth, we've got a solution that will allow them to drive growth. If it's about productivity and cost transformation and efficiency, we've got the right combination for that as well.

So it's about relevance, and we’ve heard this time and time again, that increasingly the digital transformation agenda [and]  the narrative around it is not running out of steam, in spite of concerns about the environment. It's becoming even more important, and we're better placed than any other company to help our customers through that.

My take

Despite the undoubtedly upbeat tone of the management team, Salesforce has lowered its full year fiscal 23 revenue guidance by $300 million to $31.7 billion to $31.8 billion. That still represents 20% year-on-year growth. It’s a sensible move given the ongoing volatility of the macro-climate and potential headwinds to come. But overall, a strong start to fiscal 23 to cheer Wall Street in turbulent times.

 

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