Salesforce Cuts Guidance, Reports ‘Measured’ Customer Buying Amid Economic Uncertainty

Salesforce co-CEO Marc Benioff said that, back in July, he and his team saw ‘customers becoming more measured in the way they buy’ and sales cycles ‘get stretched’ with deals ‘inspected by higher levels of management.’

Salesforce saw a year-over-year quarterly rise in revenue and strong growth with its Slack subsidiary and Sales Cloud and Service Cloud products, but the business software vendor saw decelerations in Commerce Cloud and Marketing Cloud during the quarter.

As a result, the company cut its guidance for the amount of revenue it expects to see for the fiscal year.

Despite the mixed report, Salesforce co-founder and co-CEO Marc Benioff made a small brag against SAP, saying that Salesforce outdid the Germany-based enterprise resource planning software giant when comparing the companies’ latest quarterly earnings.

“I looked at this quarter very much as kind of a milestone,” Benioff said on an earnings call Wednesday. “You know, I’m a big fan of SAP and … I have a lot of respect for their business and what they’ve done in the market over the last 40, almost 50 years. And to see our business in July do more than they reported in June, in terms of revenue, that was very meaningful to me. And I’m very grateful and proud of our team for kind of hitting this tremendous level of scale.”

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How Did Salesforce Do This Quarter?

CRN has reached out to SAP for comment.

San Francisco-based Salesforce reported $7.72 billion in revenue for the second quarter of its 2023 fiscal year, a quarter that ended July 31.

On July 21, SAP reported about $7.2 billion (7.5 billion euros) in revenue for the quarter, the second quarter of its 2022 fiscal year, a quarter that ended on June 30.

Meanwhile, Gireesh Sonnad, CEO of New York-based Salesforce partner Silverline, told CRN in a recent interview that a new practice around the media and entertainment industry and growth in Canada have contributed to 20-plus percent growth in sales year over year expected by Silverline.

“We’re having a really, really nice growth year, which we’re excited about,” Sonnad said. “We’re surpassing the growth of last year, which is exciting. And really feeling like we’re coming out of some of the stickiness that we saw in the last couple of years, if you will, which has been great.”

Product Highlights

Salesforce Co-CEO Bret Taylor said on the call that the company’s Einstein artificial intelligence (AI) platform performs more than 175 billion predictions a day.

Service Cloud reported $1.8 billion in revenue for the quarter, up 14 percent year over year, Taylor said. Marketing Cloud and Commerce Cloud brought in $1.1 billion in revenue for the quarter combined, up 17 percent year over year.

Commerce Cloud experienced gross merchandise value (GMV) growth deceleration “as consumers settle back down to pre pandemic norms,” Taylor said.

Slack brought in about $376 million in revenue for the quarter. Salesforce’s platform segment, which includes Slack, brought in $1.5 billion overall for the quarter, up about 50 percent year over year.

By the time Salesforce hosts its Dreamforce conference in San Francisco in September, the company will have more than 12 Slack product integrations with its Customer 360 platform live and generally available, Taylor said.

The company’s data segment, which includes subsidiaries MuleSoft and Tableau, brought in $1 billion in revenue, an increase of 12 percent year over year.

“’heartened by the progress we’re seeing in our go-to-market transformation of MuleSoft,” Taylor said. “We are on track to have MuleSoft return to being a tailwind for revenue growth at the back half of the year.”

Sales Cloud brought in $1.7 billion for the quarter, growing 15 percent year over year, Salesforce Chief Financial Officer Amy Weaver said on the call. The number of customers who have purchased five or more clouds grew in double digits.

Slack was in seven of Salesforce’s top 10 deals of the quarter and for the fifth consecutive quarter, the number of customers spending greater than $100,000 with Slack grew by more than 40 percent year over year, she said.

Weaver said that in July, customers added more management layers for approving deals and the company saw “deal compression.” The company saw slowness in Slack self-service and among small and midsize businesses, “which tend to be leading macro indicators.”

North America, Europe, retail, consumer goods, communications and media were more hit by the slowdown. Japan, high-tech, energy and financial services were more resistant, Weaver said.

Cut Guidance

Benioff said that Salesforce expects to see between $30.9 billion and $31 billion in revenue in the current fiscal year, about 17 percent growth year over year, but keeping the same 20.4 percent operating margin.

This is the second haircut to guidance this year from Salesforce. In March, the company said it expected between $32 billion and $32.1 billion in revenue for the year. Then in May, the company decreased the guidance to between $31.7 billion and $31.8 billion.

Benioff said that, back in July, he and his team saw “customers becoming more measured in the way they buy” and sales cycles “get stretched” with deals “inspected by higher levels of management.”

“Nearly everyone I‘ve talked to is taking a more measured approach to their business,” he said. “We expect these trends to continue in the near term.”

Co-CEO Taylor echoed Benioff. “We‘re in a more measured buying environment,” he said. “Executive teams are scrutinizing all purchasing decisions, and we are seeing some deals take longer to close. I personally met with over 100 CEOs this quarter in my travels across Latin America, Europe and North America. And digital transformation remains their top priority.”

Taylor continued: “But the focus of the conversation has shifted meaningfully toward productivity, efficiency and time-to-value. In this environment, our Customer 360 portfolio is uniquely positioned to enable our customers to deliver both growth and cost savings.”

Benioff also cited foreign currency exchange rates as an ongoing headwind for the company, losing about $250 million to foreign exchange during the quarter and expecting an $800 million cost for the fiscal year.

Still, Benioff met with hundreds of CEOs, economists, business leaders and political leaders the last few months and heard that “digital transformation remains the number one priority for CEOs.”

“You saw the results for the quarter, Benioff said. “We‘ve delivered really strong revenue growth, profitability and cash flow, showing yet again the resilience and durability of our business model in this economic environment.”

He also reaffirmed his goal of getting to $50 billion in revenue by fiscal year 2026.

CFO Weaver said that Salesforce will keep the same operating margin despite less revenue with “a more disciplined approach.”

“We are continuing to unlock incremental efficiencies across the business,” she said. “We‘re asking each leader to step up and look at their businesses and prioritize. I do believe that we are continuing to invest into growth, which still remains our number one priority.”

She continued: “In terms of the specific drivers, definitely continuing to take a measured approach and a very deliberate approach on hiring. … We are prioritizing for customer-facing travel. And, again, we are continuing to benefit from some of the decisions we‘ve made over the last few years on real estate.”

Leadership Change

Benioff and his team fielded questions on a change in leadership announced earlier this month.

Salesforce moved Brian Millham from the role of chief customer success officer to the role of chief operating officer. Gavin Patterson was moved from chief revenue officer to chief strategy officer.

“As chief operating officer, Brian is going to continue to lead our customer success organization and now adds global sales to his responsibilities, bringing our incredible customer success ecosystem and … sales even closer under Brian will help us to deliver the full power of Salesforce to every one of our customers in the new economy,” Benioff said.

According to Salesforce’s website, Millham also leads the global partners and alliances group. He’s worked at Salesforce for more than 20 years.

Patterson oversaw one of Salesforce’s “most rapid growth periods” in history during his two-year period as CRO, Benioff said. He’s worked at Salesforce for more than three years.

Taylor, current co-CEO of Salesforce, formerly held the COO title before his promotion in November.

Quarterly Results

Salesforce reported $7.72 billion in revenue for the quarter, an increase of 22 percent year over year. The company has a remaining performance obligation of $21.5 billion, up 15 percent year over year. It saw net income for the quarter of $68 million, an 87 percent decrease year over year.

Salesforce’s stock traded at $167.95 after hours, a decrease of 7 percent. The company also announced an upcoming $10 billion stock repurchase program, which Benioff said “reflects the confidence we have in our business and in our approach to generating shareholder value.”