The Six Five Team discusses Salesforce Q2 2024 earnings.
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Transcript:
Patrick Moorhead: Let’s jump into Salesforce, not infrastructure, but a whole lot of AI. So listen, Salesforce had a beat, beat, beat. They ran the tables on this one. The growth was spread across most businesses uniformly with an exception. And that was data. That was up 16%. The rest were between 10% and 12%. And I have to think, and I’m just taking a whack at this, what’s the one thing you have to do before you jump into generative AI? You’ve got to get your data in line. That is the absolute number one thing. And Salesforce has a data cloud that melds on-prem and in the public cloud, so it’s very capable of moving that data back and forth.
On the call, Marc Benioff reiterated the four foci of what he’s trying to do. And then he talked about a fifth. So at first he talked about restructuring and the second they talked about reigniting our performance culture by focusing on productivity. I think that’s short for, let’s have some layoffs. Let’s clear the deck at the top and let’s get people back into the office. Third was about core innovations. Fourth was focus on the investor. And the fifth, gosh, guess what the fifth is, Dan. Could it be AI? So a lot of good. By the way, if you go in and hit the transcript, there’s a lot of juicy stuff in there. The thing I want to end on, by the way I am looking forward to going to Dreamforce and getting the lowdown here, is the expense reductions have been pretty crazy. I mean, within one year you’re looking at close to over a 12% reduction in expenses. And you know where it primarily was? Sales and marketing.
A little bit of a cost of revenue decrease. I’d love to figure out how they did that, but a big reduction in sales and marketing as a percentage of revenue. In fact, 37% going down to 30%. And that’s not just riding the revenue curve down. It is real declines in whole dollars, which are exasperated when your revenues are going up. And the revenues did go up right around 10%. The company has a pretty bright future. I’m feeling pretty good about not only the story they’re telling in generative AI, but their capabilities in generative AI. I think their biggest challenge going forward is pulling all their properties together. It’s their overall platform. It’s combining sales, service, slack, marketing cloud and data cloud together to become a holistic platform as opposed to best of breed capabilities. And I hope they hit that at Dreamforce in addition to generative AI.
Daniel Newman: There you go. So I’m freezing up a little bit here. So can you just confirm you can hear me?
Patrick Moorhead: Yes, I can. I can see you too.
Daniel Newman: All right, cool. I don’t know what’s going on, but my laptop’s being funky.
Patrick Moorhead: Lisa playing Xbox upstairs?
Daniel Newman: Sometimes it’s, yes, we’re streaming on at least 10 concurrent networks. All right, there it comes back. By the way, that still shouldn’t be a problem. So get after it Spectrum, or whoever it is I’m using your internet from. Pat, this quarter for me was, one, very indicative of the operating improvements that have been made over the past several quarters. Company made big cost expenses.
Now this is always very tough as an analyst because as an analyst you want companies to be healthy, growing, adding staff, adding people, building careers, helping move the economy forward. But as analysts, we also want companies to run intelligently, hire, right size their businesses, consistently invest in the right areas, and not get overweight. And Salesforce as a company I think that got a little overweight during the peak growth. And I can’t blame them entirely because sometimes it’s very hard when the growth is coming so fast, you do need to hire ahead of the growth.
And to be clear, let’s remember even when its earnings were down, it was still making a lot of money. So it wasn’t like having those headcounts was making it not make money, but Wall Street, they’re particularly brutal when it comes to performance. And they don’t just want companies that make money, they want companies that make a lot of money. And Salesforce has always been one of those companies.
It’s also a company that’s sort of found maybe growth maturity, meaning remember, Pat, when it used to be growing 30% and 35% and 25% and it was going to double every four or five years? And now after making a lot of big acquisitions, spending some big money to buy Slack, to buy MuleSoft, to buy other companies, Tableau, it’s growing at low double digits, which by the way is not that different than IBM growth. So you do have to kind of call that out. And so this company is at this inflection where it, A, has to be a little bit more of a mature company in the sense of being focused on growth, but it also has to focus on being profitable. And so this is an inflection for the company.
Now, what I am really excited for the company is its data cloud and its AI growth, and you mentioned these things, so I won’t spend too much time on them, but the company’s AI day was very, very compelling. And the fact that it’s got an approach for security and privacy and AI for its sales and marketing solutions. And it had pricing where you could start to see the incremental impact, which there are different equities folks that are looking at it being anywhere from a few percentages to a double-digit percent growth on a per user basis. This could be a very exciting incremental growth opportunity for the company. I’m excited about that. I’m watching that. We’re paying attention to that. Longer term, I think that’s going to be something that is very important longer term.
Pat, we’ve got Dreamforce in two weeks, so I’m very excited to hear about what’s going to happen. I think Benny, I’ve got a Time 100 AI award or something. By the way, he’s part of the Time 100 most influential–
Patrick Moorhead: Doesn’t he own Time?
Daniel Newman: I don’t know. Does that matter?
Patrick Moorhead: Well, kind of.
Daniel Newman: Don’t you own AR Insights? I’m just kidding. I’m just kidding.
Patrick Moorhead: I wish. Some people speculate.
Daniel Newman: Anyways, but you only own the top spot. But anyways, and that’s it. So it was a strong but kind of very business as usual quarter. I’m looking for more on AI. Looking forward to hearing more on AI. This is a company that, it’s not AI washing. It’s real. When your applications enable you to understand customer behavior, sell more, sell more profitably, get more activity and productivity out of your teams, that’s the real crux of the opportunity as I see it short term. And I think they’re heading that direction. Now I just want to see it turn to dollars on the financial statements.
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.
