Salesforce Provides Limited Cloud Cover

Sometimes, even the largest cloud doesn’t pack enough of a silver lining.

First quarter financial results from Salesforce CRM 9.88%

seems to bring a glimmer of light to the field of cloud software that is failing. Revenue rose 24% year-on-year to $7.4 billion as the largest seller of pure subscription-based enterprise software announced it did not see a drop in demand due to macroeconomic challenges affects many industries. That helped cloud stocks rally in early Wednesday morning trading.

But Salesforce’s results were mostly unsuccessful. In fact, revenue for the quarter ended April 30 was just 0.4% higher than Wall Street had predicted — the lowest level in at least five years, according to FactSet. Furthermore, Salesforce cut its full-year revenue forecast by about 1% and gave its revenue forecast for the current quarter below analysts’ forecasts. The company has assessed this against currency trends, although Bernstein’s Mark Moerdler noted that “aside from the early days of Covid-19, this is the first time Salesforce has not increased its guidance for the fiscal year in currencies constant in recent memory.”

As a result, cloud stocks were in the red midday Wednesday. The sales force results follow a handful of others that collectively give an uneven picture of the current state of the industry. Last week saw disappointing reports from Workday and Snowflake but good results from Zscaler.

The latter – which provides cloud-based cybersecurity software – saw revenue grow 63% year-over-year in the April quarter and offers a growth outlook for the month-to-month period. 7 was much higher than Wall Street’s forecast.

On the other hand, Workday reported bills for the quarter below Wall Street’s target, as the HR and financial management software maker noted that some big deals are expected to close in the quarter. recent ending has been pushed to the end of the financial year. . Snowflake, meanwhile, is still posting explosive growth numbers, with revenue up 85% year-over-year in its latest quarter. But it is also the smallest percentage recorded for the maker of cloud-based business analytics software. The company also told analysts that some of its customers, facing a “more challenging operating environment,” returned to using their services during the quarter – impacting business growth. revenue from Snowflake’s usage-based business model.

In the current environment, Salesforce benefits from the sheer scale and breadth of its offerings. The company is on track to surpass $30 billion in annual revenue this year, having expanded so well from the customer relationship management software it first made a name for. The recent addition of Slack gives Salesforce an even deeper foothold for companies looking to enable increasingly remote workforces.

And compared to many of its younger cloud peers, Salesforce is mature enough to distribute both top and bottom margins. Adjusted operating income of $1.3 billion for the most recent quarter beat Wall Street targets, and Salesforce even raised its operating profit margin target for the full year ending Jan. after.

The acquiring company is also projecting a new-found sense of restraint. Co-CEO Marc Benioff said on Tuesday’s conference call that large-scale M&A deals “are not part of our books right now,” despite the sell-off in cloud stocks. rattan which he considers “a valuation consistent with a number of valuations. Deutsche Bank’s Brad Zelnick noted that Salesforce’s unwavering commitment to increasing margins and free cash flow is “essential for the stock to keep going from here.” Salesforce shares were up 10% at midday Wednesday, matching their best day in nearly two years. Message received.

Write letter for Dan Gallagher at dan.gallagher@wsj.com

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Appears in print June 2, 2022.

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Edmund DeMarche

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