Wall St overlooks Salesforce outage as Q1 numbers beat expectations

Stuart Lauchlan Profile picture for user slauchlan May 18, 2016
The US outage nightmare of last week might have been thought to at least prompt a question or two from Wall Street analysts, but in the event Salesforce's momentum carried it onwards unscathed.

Marc Benioff

It was the best first quarter ever for Salesforce, but last week’s US outage of the NA14 instance, complete with loss of customer data, was the elephant in the room.

The big decision in such circumstances is whether to address the issue proacively or to wait for Wall Street analysts to raise the topic and tackle it reactively.

In the event, Salesforce went for the former approach - and Wall Street completely failed to mention the outage, despite warnings that the incident might cost the firm around $20 million, according to an estimate from financial services firm D.A. Davidson.

That financial cost is negligible of course for a firm that’s just upped its full year revenue expectations to $8.2 billion. The bigger cost will potentially come in terms of trust and that’s a longer term issue that needs to be managed, as we noted last week.

That aside, the numbers for Q117 were impressive. The firm reported revenue for the quarter ended April 30, of $1.92 billion, up 27% year-on-year. The company's net income rose to $38.8 million from $4.1 million in the comparable period last year.

Service Cloud revenue grew 32% to $540 million, App Cloud and other revenue by 45% to $326 million and Marketing Cloud revenue by 29% to $185 million.

CEO Marc Benioff was on bullish form, taking the fight to any critics and firing off warning shots to rivals:

I think that one of the reasons that we are doing so well is because Oracle and SAP are doing so poorly in the cloud, they just have not been able to make that transformation that we’ve made, that other companies have made, and we just continue to take market share from them and gain customers at a record levels.

As is becoming traditional on the post-results analyst calls, Salesforce President Keith Block pitched the significant customer wins for the quarter:

In Q1 we signed a significant and strategic agreement with Amazon. We are now their company-wide customer platform and this is a huge expansion of our relationship with them and we plan to use more Amazon services in the future.

Uber, one of the world’s great innovative companies, another expansion in the quarter, they’re an incredible innovator with off-the-chart growth. They selected Salesforce to be their global customer success platform, so they can build one-to-one journeys at scale for millions of Uber riders worldwide. This is one of the most innovative companies as I said and they are driving their innovation by leveraging our customer success platform.

Samsung another great brand decided to standardize their B2B business on Salesforce in Q1, so they can engage with their customers anytime from any place and run their businesses right from their Galaxy phones.

Another great brand is New York Life. They have selected Salesforce to power the digital transformation and they are planning to mobilize their field agents with Salesforce and enhance the service they deliver to their customers.

And with Sapphire winding up in Orlando, there was one last zinger to be fired off:

In Europe, one of the world’s leaders and pioneers in robotics decided to go wall-to-wall with Salesforce to advance the digital transformation of their business. Now Marc alluded to this, but this is a strategic partnership where we completely replaced SAP with every cloud in our portfolio to drive at their customer success with our product suite. So not only are we their customer success platform but Salesforce will be their IoT platform connecting all their robotic devices to open up new services and apps and create new experiences to their customers.

The Amazon relationship is a particularly interesting one given that last week Salesforce announced it would be running its IoT Cloud on Amazon Web Services. There’s going to be a lot more of that this year. Block expanded:

We are definitely exploring ways so we can use AWS more aggressively with Salesforce. Of course we know that we run one of the largest application development capabilities in the world on AWS which is Heroku. We also are building our new IoT cloud on AWS. We also introduced new capabilities for our marketing cloud last week on AWS. And we have a lot of research and development capabilities in AWS.

When you look at Amazon today, there is no public cloud that is more sophisticated, more well used by enterprises ad one that has more robust capabilities than Amazon. They have done a spectacular job in defining this kind of infrastructure as a service market. They of course dominated. I think you know they are doing themselves more than $10 billion a year in it. And we’re very happy to be so tightly aligned with Amazon and AWS.

New messages

With Wall Street having decided to give the outage a miss, Benioff was left to pitch a new set of messages around the role of artificial intelligence:

When I look at kind of the next major trend for Salesforce and our industry that will drive tremendous growth, it’s got to be artificial intelligence. And as we look out into the future and we start to look at extreme improvement and advances in artificial intelligence whether it’s machine learning, whether it’s deep learning, whether it’s machine intelligence itself, I think that those kind of capabilities appearing inside our applications that is going to be a major growth capability going forward.

And one other areas that I think will advance that is that we can bring this type of new technology very much to everyone and that’s going to be the power of Salesforce that’s certainly what we are doing and with mobility today that’s what we will do in AI as we shift Salesforce to be in an AI first company.

This has begun to kick-in, he argued, in the shape of Salesforce InBox and SalesforceIQ:

Salesforce Inbox is very exciting because it uses artificial intelligence and machine intelligence to work with our users, to work with our emails, to work with their calendars, and work with their CRM data to give them perspective ideas on exactly how do be more efficient in the sales, service, and marketing processes of their companies. And when you look at technologies like SalesforceIQ and like Salesforce Inbox, well and I’m sure you know those came out of an incredible acquisition, we did approximately two years ago RelateIQ which was just a world class team that we’re able to pick up that’s based in Palo Alto.

And he added:

We’re in the midst of a massive generational shift; a new generation of customers and consumers is clearly emerging. We have been calling them here at Salesforce C generation customers. Customer generation, consumer generation that these are people who want it now, they want it fast, they want it easy, and they’re mobile, they’re social, they’re always on, and our customers are working to connect with the C generation in new ways, very exciting.

My take

It was apparently the right call from Salesforce’s PoV not to bring up the outage issue proactively. The Q1 numbers were more than enough to keep Wall Street happy.

The Salesforce World Tour hits London tomorrow (Thursday 19 May). I’ll be very interested to see if customers on the ground do or don’t raise some questions around the problems that hit the US last week and another set that happened in Europe last month. Phil will be reporting back from there Thursday and Friday.

The outage has now been explored and explained and as we said last week, it’s a short-term blip, but a hugely unfortunate one. What will be interesting to see is if there’s any knock-on effect on those confident growth predictions for the second quarter and beyond as a result.

What has been interesting - and encouraging - is that rival SaaS vendors have not sought cheap PR over this. Good - it would only undermine the wider cloud cause and come back to bite you on the proverbial later.

As for the numbers, well, not really anything to complain about there. I’m interested in what appears to be the opening of an AI front. If I read my man correctly, we’re going to be hearing a lot about this between now and October and the Dreamforce jamboree.

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