Salesforce Q4 Earnings Preview: 5 Things To Know

February saw a slew of product updates from Salesforce that CEO Marc Benioff and his team could discuss in further detail on Wednesday’s analyst call.

Salesforce capabilities in generative artificial intelligence. The opportunity with Data Cloud. And whether businesses are spending more on IT.

These are some of the topics that could come up when San Francisco-based CRM tools vendor Salesforce reports earnings for the fourth quarter of its 2024 fiscal year Wednesday.

Like other cloud vendors, Salesforce has gone all in on GenAI, with innovations unveiled across its cloud products suite and in subsidiaries including Tableau and Slack.

Salesforce Q4 Earnings

In a February report, Bank of America said that it expects that the vendor reports “1% to 2% points upside to our current estimate for Q4 cRPO growth of +10% y/y (11% y/y cc), given positive channel feedback.” The bank maintained estimated fiscal year 2025 revenue growth of 12 percent.

“As the clear front office applications leader in the enterprise, Salesforce can sustain midteens growth, outpacing industry growth of 14.5%,” according to the report.

Salesforce has more than 11,000 partners worldwide, according to the vendor.

Here is more of what to expect from Salesforce on Wednesday.

Organic And Inorganic Innovation

February saw a slew of product updates from Salesforce that CEO Marc Benioff (pictured) and his team could discuSs in further detail on Wednesday’s analyst call.

Salesforce last week made Tableau Pulse generally available with all Tableau Cloud editions and Embedded Analytics offerings. Pulse promises GenAI for surfacing data insight in a natural language and visual format, with use cases including alerts to marketing leaders to campaign performance dips.

Earlier in the month, Salesforce rolled out Slack AI as a paid add-on for Slack Enterprise plans, allowing users AI-powered search, channel recaps, thread summaries and an upcoming digests capability. The vendor also launched a new edition of Marketing Cloud called Marketing Cloud Growth that is aimed at bringing CRM, AI and automation capabilities to smaller businesses.

Analysts may have questions for Benioff about the acquisition of Spiff, completed Feb. 1. The incentive compensation management (ICM) software provider was combined with Sales Cloud.

AI Potential In Front Office

When all the tech vendor giants can expect meaningful revenue from AI is a constant question for analysts that could come up on the Salesforce call.

A Morgan Stanley report in December predicted that meaningful revenue from GenAI will be in 2025. “As the GenAI evaluation cycles run their course within Enterprises and software vendors build out the capabilities of their solutions, the pendulum likely shifts more towards buying application functionality heading into 2025,” according to the report.

But the good news for Salesforce is that CIOs report “nearly two thirds of their Generative AI initiatives focus on front office operations—improving Customer Service, more personalized Marketing, and more efficient Selling processes,” according to Morgan Stanley. “Within large enterprises, Salesforce owns the front office workflows and holds the data critical to fueling the Generative AI solutions focusing on those workflows. The Data Cloud likely proves an effective connective tissue between the two, which may prove Salesforce an earlier beneficiary than expected (perhaps a quiet GenAI precursor).”

Morgan Stanley predicted that Data Cloud opportunities could grow top-line growth for Salesforce along with past price increases.

“While we acknowledge Salesforce may lag some Software peers in market-readiness of their growing suite of GenAI-enhanced apps by a few months, announced plans for the go-live of several GenAI capabilities across Sales, Service, Marketing, and Commerce in the first half of 2024 leave us confident Salesforce will have a seat at the table for GenAI deployments by the time the majority of enterprises are putting AI-enhanced apps into production,” Morgan Stanley said in a January report.

Morgan Stanley called Salesforce “the market leader for Front Office applications,” with a “competitive position reinforced by the breadth, depth, and quality of customer data residing within its platform, well-positioning the company to become a force in GenAI-enabled business applications.”

The Salesforce Data Cloud Opportunity

In the January Morgan Stanley report, the firm dove deeper into the opportunity for Salesforce’s Data Cloud.

The cloud offering “plays a critical role in setting Salesforce up for success in the era of Generative AI, as it serves as a general purpose data lake within the Salesforce platform for unifying enterprises’ structured and unstructured data in preparation for engagement with GenAI apps,” according to Morgan Stanley.

February marks the start of pilot phases for Data Cloud Vector Database and Einstein Copilot Search, with Einstein Copilot itself expected to become generally available during the month.

“This marks a critical development in Salesforce’s ability to bring quality GenAI capabilities to customers, as the addition of a vector database within Data Cloud allows for new unstructured data pipelines to be tapped, utilizing semantic search and Einstein Copilot prompts to perform Retrieval Augmented Generation (RAG) activity directly within the Salesforce ecosystem, thus delivering higher-fidelity LLM-generated outputs for users of the Einstein 1 Platform and Customer 360 application suite,” according to Morgan Stanley.

Salesforce could also benefit from CIOs’ desires to consolidate purchases for business intelligence, analytics, marketing applications, developer operations (DevOps) software and more areas the vendor participates in.

Last quarter, Data Cloud was “included in 6 of the company's top 10 deals in the quarter and >1,000 net-new Data Cloud customers, while the number of >$1M Data Cloud deals doubled and average ARR per win more than tripled vs. Q2,” according to Morgan Stanley.

Improved Enterprise IT Spending

A Bank of America report in February said that feedback from Salesforce channel partners “suggests deal activity has been holding” and “the spending backdrop has improved, though sales cycles remain challenging, with added executive approval required.”

The report noted “stable, healthy Sales and Service Cloud deal activity” with “balanced results across the major verticals, with some uptick in the financials vertical,” along with “growing interest/pipeline in Data Cloud.”

In January, Morgan Stanley reported the results of a quarterly CIO survey that show Salesforce, Google and Palo Alto Networks as 2024 share gainers, while still “quite distant behind” Microsoft and Amazon.

Salesforce also received attention in the survey for its automation and low-code application capabilities, with 23 percent of vendors using Salesforce for this function, behind ServiceNow at 29 percent and Microsoft at 63 percent, according to Morgan Stanley, which upgraded Salesforce’s stock in December.

The survey also showed that AI and machine learning “overtook Security Software for the #1 spot on the CIO priority list, with Data Warehousing/Business Intelligence/Analytics moving up to the #2 position, underscoring the importance of priming data estates for eventual interaction with LLMs for GenAI capabilities,” according to Morgan Stanley.

Salesforce Pricing, Bundling

Morgan Stanley also praised Salesforce for “an improving sales motion focused around a better product bundling and pricing framework.”

The vendor hiked prices by an average of 9 percent last summer. However, at the time, Salesforce executives said that those increases and AI opportunities would not have “a significant influence on our guidance for this year.”

“To be clear, it is still early in the Data Cloud opportunity for Salesforce,” according to Morgan Stanley. “However, with the product now included across the company's top three bundle tiers (Enterprise, Unlimited, and Unlimited+), we see the refined pricing strategy focused around providing fewer SKUs with higher levels of functionality as a positive for continued penetration of the product within the customer base ahead of GenAI application adoption.”

The firm also said that higher tier bundles provide a higher value proposition compared to adopting similar but standalone functionality. Morgan Stanley found “cost savings in the range of 50-70% across Sales Cloud alone.”