The Six Five team discusses Salesforce Q2FY25 Earnings
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Transcript:
Patrick Moorhead: Yeah. So, let’s dive into Salesforce here. Dan, we’ve got a, did AI make a difference? We’ve got a CFO that’s leaving. Again, we’ve seen a ton of executives being replaced, and leaving and moving on. What are your thoughts about earnings?
Daniel Newman: Yeah. So, Salesforce had a bit of a banger. And again, I made the comment tough data report on Wednesday, and some people didn’t understand what I meant by that, but what I basically meant is the entire news cycle seemed to be very heavily NVIDIA centric as the entire economy was weighing on that. But companies like Salesforce and some of the others we’ll talk about today actually also reported on that day. Look, they beat, they beat, they beat. Now again, I’m going to give you both sides here. So, the model that Benioff has put out from a standpoint of revenue and EPS growth has been largely on the money. And so, that is a really encouraging thing. He talked a lot about Agentic AI and the idea of deploying these agents as being a big part of the company’s AI strategy.
And so, it was indicative, but what I didn’t really hear in the earnings, there was a lot of the AI narrative and that’s what we mentioned earlier in the conversation about how this plays out in the multiple network effects, but we’re still not entirely clear how much people are paying for additional Salesforce because of AI yet. You got Data Cloud, which I think is a powerful play for the company, but they’re executing. They got pretty lean last year. They made a lot of operational efficiencies in the business that was various overheads and of course personnel related. But the company is also… They’re delivering almost $10 a share annually on earnings. They are a very profitable company. And then, the first day of the year, they have a huge chunk of their revenue already accounted for because so much of it is subscription, the beauty of SaaS businesses.
Pat, the growth has been a little bit modest, if you want me to be like you’re talking about you run down the line, I think it was about 8% revenue growth. They’re growing in sales services platform in that 10% range, a little slower in marketing, a little faster in integration and analytics. But that’s one of those things where you look at it, you go, well, they’re trending to $38 billion. They’ve hit a lot of large numbers. They can only do so many price increases. So, a lot of their variable growth has to come through either net revenue expansion, which means selling more products to their current customers or it has to come from going out and winning net new business, which is difficult in the economy that we are in because it is still tougher out there than most of us want to acknowledge when it comes to this.
And these tools and technologies are expensive. But where I will leave this, Pat, is it’s a really healthy business. It’s very profitable. It’s very growth oriented. It’s very sticky. What do I want to hear and see as we head into Dreamforce this month? I want to hear and see how the company is going to incrementally grow revenue, expand revenue at the customer level by adding AI capabilities. And then, I want to understand who’s paying for it. Are customers willing to pay a dollar more, $10 more? Remember, you got hundreds of thousands of companies running on this technology. If you can get every user to pay a dollar more, that’s massive in terms of impact. So, what is the AI impact? And Pat, this will be the topic du jour every day for me for the next 10 years, at least two, as we try to see how this CapEx turns to OpEx. And Salesforce is an absolute bellwether for whether or not AI is being consumed at the enterprise level.
Patrick Moorhead: Yeah. So, Salesforce is one of the earliest movers on enterprise AI. Even before generative AI was cool, or maybe three months after we had the OpenAI explosion, they rolled customers out, customers like Gucci that actually were… This is more machine learning than generative AI, but they’ve done the best job being able to show some of the potential impacts. And what I think is happening is they’re balancing two worlds. And we saw Benioff talk about this one or two quarters ago when the numbers just weren’t growing like people had expected. And people were expecting NVIDIA growth numbers when this first came out. But what we had during the pandemic is we had customers buying a lot of tools, new tools, and there’s been digestion on that and people are assessing, you know how this goes, Dan, “Hey, before we buy new tools and pay more money, I want to make sure that we’re getting the full value of the stuff that we bought.”
And I do think that’s what’s happening in the customer base of Salesforce, even though in some of their key verticals and applications, they’re the clear industry leader. And we see Marc Benioff tweeting, “Hey, we’re the number one in CRM for the 80th year.” But within that install base, moving that forward is tough. There were a lot of questions on the call about AI and it was interesting. Most of the questions seem defensive like, “Hey, in the era of AI, you’re not going to need as many seats.” And then, Benioff talked about, well, we’re going to consumption as opposed to number of seats. And we think that that is going to grow and it’s going to sound like a broken record, but their Data Cloud, Data Cloud growth is always a precursor of great and big things to come.
And I don’t always nail it, but when GenAI hit, the first thing I said is you got to get the data right. And sure, we’ve heard garbage in garbage out for the past 40 years, but it’s amplified when it comes to GenAI. The difference with generative AI is that you are mixing types of data that you never thought that you would mix before. That’s the one thing. And the second thing is that the ways of extracting and doing prompt engineering, you can get data out of way. Gosh, why are we on Dell earnings here? You can get yourself into a mess and bring private data out into the public and that can be very bad. And the final thing is if you don’t get your data, you can potentially issue completely garbage results that you have to stick with, with a customer. As we saw with Airlines, he was doing a three for one and they had to give the customer that based on that mistake. Looking forward to the Big Tent event in San Francisco coming up, I think it’s going to be all GenAI and it’s going to be all Data Cloud.
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.
