Salesforce Stumbles

Salesforce reported first quarter results yesterday, slightly missing revenue consensus while issuing second quarter sales guidance also below expectations. The company reiterated its FY25 total revenue guidance range, but we also note that the language around full year subscription and support y/y growth shifted from “Approx 10%, Slightly Above 10% in CC” last quarter to “Slightly below 10%, Approx 10% CC” with this release. On the back of this news around a softer top line, the stock has fallen approximately 20% today.

On the call, the company noted moderated buying behavior in Q1 from elongated deal cycles, deal compression, and higher levels of budget scrutiny. This mirrors our APR24 Macro survey, which showed full-year IT budget growth revised down to 3.4% from the 4.3% we captured in JAN24. Our data on total Salesforce spending intentions has fallen by over 10 points (and 26%) since our JAN22 survey (see below), notably with a rise in the percentage of planned Replacements and a lower percentage of respondents intending to Increase spending by over 5% this year.

Digging into product level results, Slack's Total Revenue constant currency growth decelerated from 20% y/y in FQ1 last year to 17% in this quarter. As we noted in our most recent TSIS report for Salesforce, among Fortune 500 and Global 2000 customers, Slack’s Net Score deteriorated further sequentially, remaining below Y/Y levels due to Replacement indications expanding to 16%.

Breaking out FQ1 results by region, the company saw the slowest CC growth in EMEA at 9% y/y, down from 17% y/y in FQ1 last year. EMEA, which comprised 23% of Salesforce’s revenue last fiscal year, now trails the Americas (11% y/y CC growth in FQ1) and APAC (21%). Over the past four quarters, our data from large organizations in EMEA shows a roughly 14-point drop in Net Score. Comparatively, our Net Score data from ITDMs in large North American organizations actually showed a small rise in the same period. This mirrors Salesforce’s North American CC sales growth, which accelerated slightly from 10% y/y in FQ1 last year to 11% in this FQ1. The Americas are the company’s largest geographic region, with 67% of revenue last fiscal year.

While ETR's forward-looking spending intentions data captured Net Score declines throughout all of 2023, the consolidated Net Score results for Salesforce show a modest y/y rebound in the most recent TSIS period, bouncing off of the recent all-time lows. With the July 2024 TSIS survey already in the field, we eagerly await that data set to analyze updated spend intent for 2H24 among Salesforce customers. If you would like to access that data, or any of our research on more than 700+ enterprise technology companies that ETR tracks, either send us an email at service@etr.ai or start your own free trial here.

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