Enterprise cloud pureplays can’t catch a break from Wall Street this week. After Workday had a rough ride following publication of stellar numbers earlier in the week, Salesforce last night saw its share price drop despite turning in a 27% year-on-year revenue increase in the fourth quarter and bumping up full year guidance for fiscal 2018.
But despite the longer term confidence, it was a lower-than-expected set of guidance for Q1 that rattled Wall Street analysts.
For Q4, revenue was $2.29 billion, while full year revenue was $8.39 billion. Those numbers could have been better, said Salesforce CEO Marc Benioff, who pointed to what he said has “not been an easy foreign exchange environment” over the past months, specifically citing the impact on sterling of the UK Brexit vote:
Those numbers would be even higher if we did not see things that have happened in Brexit and pressure on the Great British Pound.
For specific segments of the business:
- Sales Cloud was up 13.5% year-on-year for for Q4 to $804.9 million and 13% for the full year to become the first $3 billion cloud in the portfolio.
- Service Cloud was up by 24.2% to $615 million in Q4 and 20% for the full year.
- Marketing Cloud was up by 62% to $298.8 million and 25% for the full year, excluding the Demandware and Krux acquisitions.
- Platform and Other was up 33% to $391.7 for Q4 and 25% for the full year.
With the long-standing $10 billion cloud company goal now well within reach, Benioff took a different spin on those numbers, focusing on Sales Cloud:
Sales Cloud has become one of the very largest software products in the entire industry. And of course all by itself, I think it's probably the largest cloud computing company…It's over $3 billion. So that's bigger than – Sales Cloud is bigger than what Workday, ServiceNow, NetSuite…Better than Oracle's entire cloud business, that type of thing. Anyway, yes, Sales Cloud is amazing, and it has re-accelerated.
There's no other Salesforce automation solution in the world that's as successful as Sales Cloud, has the market share of Sales Cloud, has the growth of Sales Cloud, but also is as innovative and competitive as Sales Cloud. It has, after 18 years, remained number one in innovation and capability. That is incredible.
Overall, the individual clouds revenue increases are indicative of delivery on Salesforce’s strategy of focusing on specific industries, according to COO Keith Block:
This is all about speaking the language of the customer and bringing industry expertise and launching industry products in the marketplace…We had strong growth in Q4 in all of our target industries. In fact, the largest deal in the quarter was a massive expansion with one of the world's leading CPG brands based in Europe using Marketing Cloud, Sales Cloud and Service Cloud to deliver personalized consumer experiences. We expanded our relationships in Q4 with three of the five largest CPG companies in the world, all of them running on Salesforce.
There’s a lot of cross-selling going on across the various clouds, he adds:
We're in an enviable position where we're a market leader in every cloud that we make and produce and bring to the market, and that drives incredible amounts of customer success into the marketplace for our customers. That is where we are laser-focused.
When we go to market, we go to market on a solution basis, which is typically a multi-cloud solution. So that could be by industry, that could be by line-of-business. But when I think about, for example, the top 10 deals in the quarter, 8 of the top 10 deals in our quarter in Q4 had multi-cloud solutions. So that means it wasn't just Sales Cloud. It was Sales Cloud and Service Cloud, or it was Marketing Cloud and Communities, or it included Analytics etc.
The most recent cloud is of course the AI cloud and Einstein was never far from the conversation with Benioff offering up an interesting ‘eating your own dog food’ anecdote based on Salesforce’s own use of the tech to predict sales forecasts. One of the Salesforce sales managers was confident of delivering a good quarter, he said, before Einstein decided that he wasn’t:
It's kind of a funny story because he actually made his number and had a world-class quarter, which was [in] our European business…Einstein said, ‘Well very sorry, but you're not going to make your number this quarter. You're going to miss by $10 million, okay, approximately’.
So this really got him upset actually. I think that it kind of spurred him into action a little bit because it was said, because of this variable is not right and this isn't right and this isn't right, you're going to have this result. All of a sudden, he became kind of, I would say, inspired and went out there and he had a great quarter. Maybe he would have had a great quarter anyway, but this is a new player at the management, on the management team, Salesforce Einstein.
Einstein has yet to make any material impact on the Salesforce bottom line, but that will change, argues Benioff:
Einstein is an up-sell opportunity into the install base, but that's not our primary goal with it. For some of our customers, they will receive Einstein as part of their platform. For other of our customers, they will pay for Einstein. But I think the most important part of Einstein for us is its differentiation against other CRM products.
Now that Salesforce has shipped Einstein into its core platform and released it to its customers worldwide and now that so many customers are using Einstein and we have so many exciting stories about Einstein which is only going to accelerate through the year, Salesforce is the only CRM platform in sales, service, marketing and commerce and community and analytics that has this deep artificial intelligence capability available to it. That is going to accelerate this year, not only in innovation, but also in customer use.
Jittery Wall Street watchers aside, a strong end to what was a very busy year for Salesforce. The $10 billion run rate is now within staggering distance and seems like such a fait accompli that it was scarcely referenced on the analyst conference call yesterday. Things to be watched in fiscal 2018 - the ongoing impact of the Brexit-generated currency impact, the use case success stories that can be delivered around Einstein and how Salesforce’s relationship evolves with the Trump administration in the White House. The first is beyond Salesforce’s control, the second is entirely with its purview, while the third…well, I'm not sticking my neck out.