Salesforce's co-CEOs turn in strong Q2 ahead of Dreamforce
- Summary:
- A strong second quarter for Salesforce as the Benioff/Block co-CEO balance takes shape.
With a month to go until the annual Dreamforce jamboree in San Francisco, Salesforce turned in strong Q2 numbers with 27% revenue growth, even if Wall Street frowned at the guidance for the current quarter.
Revenue for the quarter was $3.28 billion, up from $2.58 billion a year ago, with net income of $299 million. Per cloud, Sales Cloud accounted for $1 billion - the first time it’s hit that number - with 13% year-on-year growth , Service Cloud was up 27% to account for $900 million, Marketing and Commerce Cloud were up 37% to deliver $500 million, and Salesforce Platform and Other revenue contributed $700 million, up 32%.
Salesforce estimates $13.15 billion revenue for its full 2019 fiscal year, which would be an annual growth rate of 25%. Looking further ahead, the company is now talking about turning in $23 billion in revenue by fiscal 2022.
So all good positive stuff, but Wall Street was cool on third quarter guidance and sent the share price down 3% after the results were announced.
co-CEOs
The post-results conference call with analysts was the first with Keith Block in his new role as co-CEO and it was he who led the call, before handing over to Marc Benioff. Block picked out some key wins from the quarter:
We expanded our relationship with 100-year old CPG company that’s undergoing a multi-year digital transformation. We’re leveraging Sales Cloud and Marketing Cloud, Service Cloud and Einstein to accelerate decision-making and support customer-centric growth across their portfolio of brands. This is a great example of an iconic industry leader stepping into the future with Salesforce...Southwest [Airlines], which has won awards for its customer service leadership is extending Service Cloud and Einstein to 4,000 service representatives nationwide, enabling them to deliver smarter and more personalized customer experience.
We expanded with Kimberly-Clark whose products are used every day by one quarter of the world’s population. We also deepened our relationship with Hulu, which is using Marketing Cloud, Service Cloud and Einstein to personalize the viewer experience for more than 20 million subscribers.
In EMEA, we strengthened our relationships with Rabobank Group. We also had a great Commerce Cloud win with leading Dutch retailer Ahold Delhaize. In APAC, we expanded with MUFG and Mitsui Sumitomo Insurance in Japan. In Australia, we expanded with the country’s largest telecommunications provider Telstra and we formed an exciting new relationship in the public sector with Australian Health Practitioner Regulation Agency.
Block also pointed to success in key verticals, including healthcare and public sector:
In healthcare, we launched Health Cloud for Payers to make it easier for insurance companies to effectively and efficiently connect with members and providers. We also significantly expanded with one of the largest private payers in the US, leveraging Health Cloud and Service Cloud to enhance their members experience and reduce the cost of care. In the quarter, IQVIA, a leading life sciences company, significantly expanded with Salesforce and they are leveraging Health Cloud and the Salesforce Platform to build innovative solutions to address the clinical, commercial and regulatory needs of their clients...we had our most significant public sector win with the US Department of Agriculture (USDA) last quarter, while in Q2, the USDA significantly expanded again with Salesforce rolling out Service Cloud and the Salesforce platform across their entire agency.
He added:
Public sector is one of our strongest verticals. It continues to be one of our strongest verticals. Whether it's the United States government or the UK government or any government in the world, they're charged to provide a higher level of service to their citizens. And that comes to the modernization of their legacy systems and using new technology like ours so that they can engage with citizens in an unprecedented way and that’s truly fueling our growth. That business is very, very healthy and we support those organizations and their missions, and the results speak for themselves.
Mulesoft kicks in
This was also the first quarter with Mulesoft as part of Salesforce. While it’s still early days, Block said that things are bedding down:
If you think about the conversation that we're having at the CEO level, these are all about digital transformation. And the whole concept of integration just completes the thought and the promise of digital transformation by unlocking the data from these legacy systems. MuleSoft already has a very, very capable and high-performing sales organization, which we continue to invest in. And we've been able to have very, very tight alignment enablement with the core Salesforce sales organization and that's just created lot traction.
But again, if you think about the conversation and the dialogue that we're having with our customers, this is just one of a missing piece of the puzzle and we listen to our customers. That's why we made this acquisition, because we knew exactly how important this is going to be to completing that digital transformation. So the integration is going very, very well the traction is there, the alignment is there, the synergies are there, the enablement is there. And the customers want this message, they want the store, they want the solution.
He added:
This morning I received an email from the CEO of one of the largest banks in EMEA who wants to bring their entire executive team over to talk about the integration with MuleSoft could do to unlock their data...There is huge opportunity in the space.
Wider picture
It fell to Benioff to pick up some of the wider industry trends, talking about a recent management conference where he met with more than a hundred CEOs of European companies:
Every conversation that I have with them, I see a deep yearning for them to have a more complete relationship with their customer. But it's a deeper aspect of that - they want a one-on-one relationship with their customer, especially consumer companies. If you go to some of the major consumer sites and companies that we work with, like Louis Vuitton or Adidas or L'Oreal or Puma or New Balance, you can see that you're starting now [to see a] one-on-one relationship with the company, that they're able to really provide a one-to-one experience with you. And that's not just in commerce, it's in marketing, in customer service, in sales.
Benioff also argued that spending habits in the US have been boosted by the recent tax cuts by the Trump administration, but added that in the wider world there is also an appetite to invest:
I've never seen such a robust spending environment. This is just the time now to speak really to the CEO level. I've never seen CEOs spend so aggressively. They've benefitted really dramatically from these tax cuts and also from the deregulation focus, especially in the United States. And it doesn’t matter if it;s American or European or an Asian CEO. I've had occurrences with all of them recently and I can tell you that across the board, I don't know a CEO who is not aggressively spending at a level that I have not seen them spend that before. And probably the number one thing that they're spending on is their own digital transformations. They are really positioning their companies for the future.
My take
We predicted four years ago that the Benioff-Block combo would become the shape of things to come, when we said:
It’s clear that Block means business and we can expect to see a lot more of him center stage in the future. This is an interesting development for Salesforce.com, a company that has been so dominated by the imprint of one man’s sheer force of will.
Yesterday’s con call just confirmed our thesis. Benioff/Block provides a good leadership balance and one that bodes well for those ambitious 2020 revenue targets.
Letting Block essentially lead the call sent a strong message of the new order without in any way diminishing Benioff. It will be interesting to see how this manifests itself at the forthcoming Dreamforce. For his part, the ‘never-knowingly-underselling’ Benioff made a bold prediction:
I promise all of you that this will be the Dreamforce that you will all never forget.
That’s fighting talk. Bring it on.