The Six Five team discusses Salesforce Q1 Earnings.
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Transcript:
Pat Moorhead: Salesforce’s Q1 earnings. Dan, what is going on at the force?
Daniel Newman: Hey, do you mind if I do a quick disclaimer just before I start talking about the stock? This show is for information entertainment purposes only, while anything I would say or Patrick says cannot be looked at as investment advice. Please just enjoy the content, enjoy our perspectives and know that we’re right, but don’t invest based on anything we say. Okay, there we go.
So look, I guess there’s the question of did they beat or did they not beat? I think on the lowered guidance, it was a good quarter for Salesforce, but of course the market was pouting a little bit because it was the slowest growth that the company had I think on record, I think is the actual data point here. But let’s look at what we’re up against. We’re up against tons of companies laying off lots of people and despite the stronger than expected job market that we’ve heard about, those aren’t information jobs. Those aren’t the kinds of jobs that people are using Salesforce. Those are a different set and archetype. So lots of companies, the big tech companies, all these laps means less seats for SaaS. So Salesforce is working against that sort of macroeconomic headwind to grow the business, and yet they still grew the business 11%. They also froze prices, paying attention to customer sentiment. And overall the company is still on a good track.
But let’s be really clear what this quarter was about. This quarter was about Marc Benioff getting on the record and coming out and telling a story about AI. That’s what this quarter was all about. He came out and he talked about we have Salesforce GPT, you have Tableau GPT, you have Slack GPT. This wave going forward is going to be it’s time for Salesforce to get on the record to contest that it’s not just Google and Microsoft, that they have a real play to be made and that this GPT generative AI capability is going to be meaningful for the business long term.
Because really right now with these kind of macro headwinds, with slowdowns, with prices being frozen, with the overall market, this is the time for the company to sort of reboot. It’s made some important cost cuts, it was able to deliver on its earnings. But what it does need to do now is it needs to drive growth and it needs to convince the market that it’s got the answers for all this AI technology. Pat, look, I think we have to consider how businesses are going to run. Salesforce is the most pervasive CRM platform on the planet. In terms of the broader Slack integration, I’ve been saying for a long time, there’s some room to grow. They’ve not done a good enough job of making Slack the front end business digital headquarters that has been promised. I think that’s a big opportunity for low-code no-code, for optimization in workflow, for better business decision making and data visibility. And I think of course Tableau can help that.
But the GPT thing, the fact that we’re going to move from complex, multi-screen querying, lots of custom design to being able to ping a prompt to be able to get data out of the system is what Marc Benioff was indicating in his post earnings call, the earnings call. And that was what I got most excited about. So my take is it’s the AI story now. This has been the quarter of AI. The growth has slowed, they need to turn that back up. But AI is going to be the accelerator for this. So not too much on the numbers Pat because it was kind of business as usual, but the slower growth concerned people, but AI was the story.
Pat Moorhead: Yeah, good breakdown. People kind of forget they beat on the top and they beat on the bottom, right? Very good profitability, which I think is a good testament to some of the transformation that Benioff is putting in place. And by the way, cleaning house of many of its senior executives, or maybe the other way to look at it is they just didn’t want to hang out and be part of this transition. There is definitely a sediment, and Dan, I brought this up years ago, we kind of got used to 20% growth in and out every quarter. We’re down to single digit, maybe 10% right now. And investors are wondering if it’s a growth play. You dip below that 20% day in, day out and that’s the issue. Now they had 10% growth. I think it’s too early though to call whether it is just the economy or being self-inflicted. Some of the biggest areas of decline, I mean Q1 of ’23 Slack, this platform and other, 58% growth. It was 12% growth this quarter. A year ago in the Americas, 21% growth. In this quarter, 10%. Those are absolutely dramatic slowdowns.
One of the things that I appreciated you adding is if you look, who’s being laid off now, do you know who they are? They’re marketing people and salespeople. Now I know that the days of Salesforce being a CRM company, even though it’s their ticker, they’ve grown a lot outside of that, right? With MuleSoft, with Tableau and Slack and others, but some of their core users basically got laid off. Now, I don’t know if those were decision makers or not, but the consumption and the sales have essentially been cut in half. Then if I look at the comparison in growth like I showed out, I think it’s pretty staggering. I think what the street wants to see is they want to see numbers based on the AI talk. I am very impressed with what Salesforce has rolled out throughout. I mean adding GPT to basically everything, everything’s not GA yet, but some of it is, and these are exactly the type of applications that you expect generative AI to add enterprise value.
So I’m optimistic about how they’re doing and I look forward to learning more about how their customers are using these AI integrations. And by the way, are they making more money? Are they taking market share? It’s one thing, and we’ve got a couple stories here of companies who talked AI and their stocks just were flat, right? Because they couldn’t show growth, EPS, prices, things like that.
Daniel Newman: So, Pat, and I know we got to keep moving, but the demarcation between winners and losers on AI have been the companies that have been able to discern the value of the content versus just needing to add AI as a, “Hey, this is something we’re going to put in our current product for the same price.” So anyways, that’s what I’m not sure about is, does Salesforce charge more? Does it actually yield more revenue or is this kind of table stakes?
Pat Moorhead: Yeah, or to protect share, protecting share doesn’t get anybody excited in the street. So yeah, more research to go.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
