Key Takeaways
• We continue to see declining spending intention data for Salesforce, especially among larger customer cohorts, following soft growth guidance issued last quarter that largely underwhelmed investors
• Okta has seen a clear two-quarter uptick in Net Score from declining Negative responses and steady Positive indications, including critical large organizational segments, indicating that customers may have now rightsized spending and churn may be easing with the identity leader
We turn to the final week of earnings before Labor Day Weekend, with plenty of off-calendar software companies still left to report. This week, we highlight ETR’s data behind Salesforce and Okta from our most recent July 2024 Technology Spending Intentions Survey (TSIS).
Salesforce: Data Still Declining After Difficult Q1
Salesforce is set to report second quarter results on Wednesday, August 28th, after the market close. Last month, we issued a Negative outlook on our JUL24 TSIS data set, which showed the company’s citation-weighted Net Score dropping sequentially and continuing a long-term downward trend. More concerningly, this weakness is more pronounced among Global 2000 organizations, with Salesforce’s Net Score down 5.2 percentage points sequentially, now 2.9 percentage points below the levels captured in OCT23. These data points continued the downward momentum for the vendor that started in OCT22.
Within its core Enterprise Applications business, Salesforce’s Net Score has trended negative by 4 percentage points y/y while also deteriorating sequentially by 6.5 percentage points, driven by more Decrease intentions and fewer relative Increase indications. The decline is more pronounced among Global 2000 and Fortune 500 organizations, where Net Score fell 10 and 14 percentage points since our last second half survey in OCT23, respectively.
Figure 1. ETR’s Technology Spending Intentions Survey asked IT Decision Makers at Global 2000 firms about second half spending intentions for Salesforce (G2000 N = 284).
Last quarter, revenue slightly missed analyst consensus due to weakness in Professional Services stemming from macro conditions impacting bookings. Despite strong cash flow and a solid performance in subscription and support, the company's growth outlook for this quarter was cautious, coming in below expectations. With worries over slower bookings and potential execution issues, particularly within the company's go-to-market strategy and the lack of impact from their AI initiatives, shares of Salesforce fell nearly 20% the following day. Like many software companies, the vendor faces headwinds from macro conditions and IT spending delays, contributing to the slowdown.
Management reaffirmed its full-year revenue and operating margin guidance, reflecting confidence in its long-term growth prospects, especially in emerging areas like AI and multi-cloud deals. While our data shows stability in certain product lines and the company has reported strength in some areas, particularly data cloud and multi-cloud adoption, significant concerns remain about the forward-looking growth trajectory.
Okta: Bouncing Back from Initial 2024 Outlook
Okta has also announced it will release its Q2 results after the bell on Wednesday, August 28th. The identity security vendor sits at a critical juncture following multiple security breaches, layoff rounds, and sales executive turnover in recent years. One quarter ago, Okta’s aggregate Net Score hit all-time lows for the second consecutive quarter, with the sharp decline broadly hitting across all organization sizes, resulting in a Negative outlook on the vendor’s data set.
However, on an aggregate basis, Okta’s (and Auth0’s) JUL24 Net Score bounced off all-time lows captured in the prior survey period, coming in at 40%, five percentage points higher than April. The rebound in Net Score was driven by a jump in Adoptions, which were cited by 14% of respondents, matching levels from 12 months ago. Meanwhile, Replacement rates remain elevated, but overall Negative intentions (9%) are less severe than levels captured earlier in the year. Large organization data cuts look even better, with churn in F500 companies down significantly vs. the first half:
Figure 2. ETR’s Technology Spending Intentions Survey asked IT Decision Makers at Fortune 500 organizations about second half spending intentions for Okta (F500 N = 75).
Last quarter, Okta reported sales growth of 19% y/y, topping consensus estimates by over 2%, while billings increased by 16% y/y, beating expectations by nearly the same percentage. The company also provided better-than-expected Q2 guidance and raised its FY25 top and bottom-line outlook. Management noted that the public sector showed solid performance, spoke about the rollout of Okta’s privileged access management (PAM) product, and was optimistic about new product uptake and the sales pipeline.
However, the results did not fully assuage investor fears around potential growth reacceleration, with arguably conservative guidance in this quarter’s 10-11% cRPO range, despite the full year sales raise. The company has seen growth decelerate from 43% in FY23 to a current company guide of 12% this year (FY25). In response to the print, shares of Okta traded down by around 8% the following day but have since recovered and are up over 12% YTD. Compared with the software sector, Okta now sits just below the mean and above the median for EV/Forward Sales, at 5.7x.
The impact of last year’s security incidents may still be contributing to overhang, though, as some IT leaders are reporting more wariness around vetting new vendors in the wake of last month’s outage (though we note the CrowdStrike outage was not security-related). See our full CrowdStrike Microsoft IT Outage Follow Up Survey report, published this week, for full responses on how ITDMs view security consolidation and adoption process speeds in response to the incident.
ETR Connect Experts are Available to Speak about Salesforce and Okta
VP of IT Security | Large Business Services Enterprise
“We use the traditional Salesforce CRM, and we also use the e-commerce cloud. I think they changed the name, but I think of it as the e-commerce cloud. But Salesforce exists in every one of our operating companies. It is our primary CRM sales tool. And then, like I said, from an e-commerce standpoint, our largest operating company is Salesforce ecom. We've experimented with Microsoft Dynamics. One of our companies wanted to go that route. They started down that route, and then they ended up ending the project and just going back to Salesforce. It didn't have the capabilities. It just didn't have the same breadth of features that they needed, that Salesforce did.”
Chief Information & Technology Officer | Midsize Business & Tech Services Enterprise
“Convergence is the name of the game here. The more you know, whether it's a zero trust network or anything else, it at all relies on identity to start with. The more you're able to consolidate the identity and the logins, removing shadow IT, and letting people log in with their own usernames and passwords, the better you're going to be in securing a sort of the attack service. And it all starts with the identity. Again, if you already have a Microsoft ecosystem because you’re M365, Entra ID is a natural player there. Five years ago, Okta was clearly better. Today, I don't know that that's necessarily the same statement. Okta certainly does customer identity better than Microsoft does, but I don’t know if they do enterprise identity any better.”
Enterprise Technology Research (ETR) is a technology market research firm that leverages proprietary data from our targeted IT decision maker (ITDM) community to provide actionable insights about spending intentions and industry trends. Since 2010, we have worked diligently at achieving one goal: eliminating the need for opinions in enterprise research, which are often formed from incomplete, biased, and statistically insignificant data. Our community of ITDMs represents $1+ trillion in annual IT spend and is positioned to provide best-in-class customer/evaluator perspectives. ETR’s proprietary data and insights from this community empower institutional investors, technology companies, and ITDMs to navigate the complex enterprise technology landscape amid an expanding marketplace. Discover what ETR can do for you at www.etr.ai