Salesforce – Macro Headwinds, Leadership Turnover & Short-term Performance

• The specialist anticipates additional, significant layoffs by the time Salesforce announces its FY23 earnings, likely among middle management to maximise human capital efficiency.
• Customer acquisition cost is a key profitability metric and effectively measures the utilisation of sales staff, which has been inflated over the past couple of years.
• Growth should re-accelerate in Q4 FY23 due to renewals, following a historically slower Q3. FY24 will be focused on profitability rather than growth, and 20% growth should be achievable in FY25 and beyond. 

“After the bumps in the road, I look at this year for Salesforce kind of like Microsoft in 2013. I think Salesforce goes through a little bit of a challenge and then they come out of the gates in 2024 and beyond really well-positioned to take over several markets.” Former VP at Salesforce

• Although churn rate will likely stay in the 93-95% range, tech layoffs reducing seats and cutbacks in discretionary spending could result in a 10% decrease in contract sizes and impact Q4 FY23 net revenue retention.
• Salesforce and other tech giants will ultimately need to re-write their entire tech stacks with AI, and those companies that succeed in this will be the long-term winners.
• The specialist believes the biggest risk to Salesforce that investors should be considering is human capital, or “the fight for quality talent between”.  
• Salesforce only has 19% of the CRM market share and its closest competitor is Microsoft, with 8%. “There’s this whole untapped market that they’re not even in,” the specialist said. 

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