Salesforce Q1 Earnings Preview: 5 Things To Know

‘While the macro is not roses and rainbows and CRM is still battling through various headwinds, overall we saw stronger cross-sell activity this quarter,’ read a Wedbush report.

Some investment firms predict that Salesforce will beat expectations again when the customer relationship management software vendor announces earnings Wednesday for the first quarter of its 2024 fiscal year.

San Francisco-based Salesforce beat expectations last quarter amid a global tech business slowdown and the gathering of multiple activist investors. This time around, firms await updates from the vendor around its investment in artificial intelligence – especially generative AI – and more cross-selling across its product suite, which includes subsidiaries Tableau, MuleSoft and Slack.

Investment firm Wedbush predicts a “modest upside” to Wall Street’s expectations, with strides in integrating Slack into the broader CRM suite and the majority of cost-cutting activities done, according to a May report.

“While the macro is not roses and rainbows and CRM is still battling through various headwinds, overall we saw stronger cross-sell activity this quarter and particular strength out of the Tableau front with a number of larger more transformational suite wide deals inked during the quarter,” according to Wedbush.

Salesforce Q1 2024 Preview

A letter in May from Birmingham, Ala.-based investment firm Vulcan Value Partners called Salesforce a “material contributor” to the fund’s performance during the fund’s first quarter.

“The company has taken numerous positive steps to increase profitability more quickly than expected,” according to the letter. “Salesforce also improved its corporate governance by recommending three new board members. The company is focused on improving margins, deemphasizing acquisitions, and has expanded its stock buyback plan from $10 billion to $20 billion. We believe Salesforce can pursue these opportunities while continuing to increase its competitive position.”

Meanwhile, a May report from Morgan Stanley laid out predictions of Salesforce getting closer to 30 percent operating margins and an “upside to consensus topline estimates” due to “relatively stable checks, healthy partner pipeline commentary, and easier” year-over-year comparables.

Conversations with partners revealed “signs of stabilization in Salesforce’s business relative to trends observed in F2H23, with healthy pipeline commentary and expectations for stable YoY growth trends despite ongoing macro challenges,” according to Morgan Stanley.

Salesforce has more than 11,000 partners in its ecosystem, according to the vendor.

Here are other factors to consider going into Salesforce’s earnings Wednesday.

News On Genie CDP

A May report from Morgan Stanley predicted some updates from Salesforce around the Genie customer data platform (CDP) feature unveiled during Dreamforce 2022.

Based on conversations with Salesforce partners, Morgan Stanley reported that “this quarter marked the first time since its introduction … that the Genie CDP solution appears to be garnering meaningful customer interest, particularly for customers with large existing Salesforce implementations and others looking to consolidate CDP/marketing tools.”

“While partners noted Genie is not yet driving new deals and the tech may still be a couple quarters off from the full real-time CDP that Salesforce management has promised, it has grabbed customers attention and is leading to incremental customer engagements,” according to the investment bank.

AI Investment

Benioff and his team will no doubt have updates for listeners on the vendor’s investment in AI and generative AI in Salesforce and the subsidiaries.

Salesforce revealed its EinsteinGPT offering in March and showed a variety of use cases.

It’s possible that Salesforce is already seeing benefits to its business from rolling out generative AI offerings, as Microsoft executives asserted during their quarterly earnings call in April.

“Some of the work we’ve done in AI even in the last couple of quarters, we are now seeing conversations we never had,” Microsoft CEO Satya Nadella told analysts on the company’s latest quarterly earnings call. “Whether it’s coming through even just OpenAI’s APIs, right – if you think about the consumer tech companies … They have gone to OpenAI and are using their API (application programming interface). These are not customers of Azure at all.”

Morgan Stanley doesn’t expect a Genie-like splash from EinsteinGPT, however.

According to the Morgan Stanley report from May, Salesforce partners have found “an even longer timeline to full tech readiness and less enthusiastic views on near-term customer adoption given Einstein’s limited success to date.”

A May report from investment firm Wedbush predicts AI monetization in Salesforce’s installed base could get the vendor at least $4 billion more in revenue by 2025.

Tableau Updates

Salesforce’s earnings report comes on the heels of Tableau Conference 2023, during which the data analytics vendor and Salesforce subsidiary made a host of announcements.

During the conference, Salesforce detailed an upcoming pilot for Tableau GPT and Tableau Pulse as well as updates to Data Cloud and VizQL.

Users can leverage Tableau GPT for data analysis automation and natural language prompts for creating data visualizations, according to Salesforce. Tableau Pulse can provide automated analytics, surface new ones with natural language and connect with Slack and email.

VizQL Data Service, meanwhile, is a new capability that allows Tableau embedding in automated business workflows, according to Salesforce.

Tableau also revealed a new integration between Tableau and Amazon Simple Storage Service (S3) that promises users access to unstructured data in AWS S3 directly from Tableau.

Tableau has a new CEO – Ryan Aytay, previously Tableau’s chief revenue officer.

A May report from investment firm Wedbush found “stronger cross-sell activity this quarter and particular strength out of the Tableau front with a number of larger more transformational suite wide deals inked during the quarter.”

Microsoft Competition?

The May report from Morgan Stanley noted that Salesforce might face more competition from Microsoft’s Dynamics 365 line of enterprise resource planning and CRM applications.

“Though we did hear of some increased competition from Microsoft’s Dynamics 365 within the mid-market segment, all partners spoke to stable-to-improving win-rates,” Morgan Stanley said.

Dynamics, along with other Microsoft products, has been involved this year in the expanded access to the Redmond, Wash.-based vendor’s generative AI copilot offerings. Microsoft announced even more products getting copilot access during its Build 2023 conference in May.

Signs Of Improvement

The Morgan Stanley report said that conversations with partners showed stabilization in Salesforce’s business.

“While partners noted a modest pause in deal activity resulting from stress in the Financial Services sector in March, customer engagements appeared to normalize in April,” according to Morgan Stanley. “Partners continue to highlight increased budget scrutiny, escalation of deal signings to the CFO’s office, and modestly longer sales cycles relative to recent years; however, we were encouraged to hear no incremental worsening of trend relative to deal elongation from FY23.”

Even with the layoff of 7,000 Salesforce employees this year, partners told Morgan Stanley about “limited disruption in customer engagements on the back of the early FY24 headcount reductions.”

Partners even “spoke to beliefs further headcount reductions could be conducted without sacrificing productivity.”

The firm said that “importantly, partners called out early signs of Salesforce benefitting from an increase in customer propensity to consolidate IT wallets to fewer, more strategic vendors.”

Morgan Stanley predicts Salesforce to report remaining performance obligation (RPO) of more than $23 billion, up 10 percent year over year, a little less than what Salesforce forecasted.

The firm expects current RPO (cRPO) growth of 11.7 percent year over year and for Benioff and his executives to raise 2024 fiscal year revenue guidance above 10 percent year over year, according to the report.