Specialist
Former VP at Salesforce Inc
Agenda
- Macroeconomic headwinds facing Salesforce (NYSE: CRM), noting which cloud players are expected to feel the heaviest impact
- How the departures of Bret Taylor, Stewart Butterfield, Mark Nelson, Gavin Patterson and Mark Carter could impact the company’s culture, growth and outlook
- Short-term growth expectations and how Salesforce might recover from a challenging H2 2022 and likely difficult H1 2023
- Potential deals to watch for given deflated software valuations
- Profitability outlook and expectations for additional lay-offs, CAC (customer acquisition cost) dynamics or other cost-cutting measures
Questions
1.
What is your overview of Salesforce’s operating environment? What key trends or drivers should we pay attention to when looking at the business and the cloud software industry more broadly?
2.
Could you comment on Salesforce’s profitability and spending? It’s been a much-discussed topic recently and you mentioned the company conducting lay-offs. Do you have any additional thoughts about KPIs or key factors you’re monitoring as it relates to profitability in the short or long term?
3.
Have there been any specific trends with CAC [customer acquisition cost], especially emerging from the pandemic when there were so many tailwinds, and given current struggles around COGS getting out of control? Are there any specific marks to mention, or are those just the two areas you’d be tracking very closely if you were looking to invest?
4.
What’s your take on Salesforce’s lay-offs announced in December 2022 and January 2023? The company let go of over 8,000 employees, or 10% of its staff. You mentioned the activist investors coming in and saying, “These tech lay-offs are a great start, but it’s been nowhere near enough.” Given how many people it hired between the pandemic and now, do you expect to see more significant lay-offs and if so, in what time frame?
5.
You mentioned Salesforce making large acquisitions over the last couple of years, namely Slack, MuleSoft and Tableau. Did any not work from a growth, connectivity or platform integration standpoint? If one segment had to go, which would you suggest?
6.
Within the span of one month at the end of 2022, we saw a number of key employers leave Salesforce including co-CEO Bret Taylor, Tableau CEO Mark Nelson and Slack CEO Stewart Butterfield. What do you make of these departures? How significant could they be in terms of driving future growth for those specific segments and the company?
7.
Do you have any concerns about Salesforce’s leadership and ability to find a successor to Marc Benioff, or the general direction of upper management, based on what we’ve seen?
8.
Much of Salesforce’s profitability and growth challenges are stemming from the deceleration that has a lot of analysts and investors very worried about the trajectory of the business. The company saw 14% YoY growth through Q3 FY23, which is the first time it dropped below 20% in recent memory. Do you think this might be the new norm as we emerge from what’s looking to be a challenging 2023 macro landscape? Do you think it could re-accelerate and be considered a growth company again, instead of more of a value one, as a lot of people are now trying to label it?
9.
How do you expect growth to trend for Salesforce? Do you think the company’s Q4 FY23 and FY24 will return to the historical 20% growth, or will it be a case of getting through calendar year 2023 and hoping it re-accelerates in 2024?
10.
You referenced how Salesforce will face headwinds as people get laid off at different tech companies, in terms of the number of seats that customers will be paying for. Beyond that, what discretionary elements do people pay for that could be cut over the next 12 months, given potential budget reductions? Is the entire contract locked in, or at least for elements that are considered mission-critical?
11.
Although you expect renewals to stay strong in the 93-95% range, is it fair to say you expect NRR [net revenue retention] to fall, alongside expansion rates, as people slow down what they’re adding?
12.
Should we consider Salesforce a growth or a value company at this point? When you look at its trading multiples, at one point it was trading for 20x its enterprise value, which is obviously huge, even for a growth stock. It has now fallen below the average for a software company, and gone into this bucket of medium growth, trending more towards value than growth in the long term. Do you think that’s a fair characterisation? If I was asking you now, 3-5 years, value stock or growth stock?
13.
Was the need to incorporate AI an ongoing conversation while you were at Salesforce? Obviously, over the last three or four months, since the roll-out of ChatGPT, the concept of AI seems to be everywhere with people trying to embed it into systems. Is this a philosophy you’ve picked up on since you left at the beginning of 2022?
14.
What do you think is next in Salesforce’s product development? You said for the company to return to a high-growth stage, it will have to go out and continue its strategy of finding new solutions to expand horizontally, or improve existing clouds. What should the spend priorities be and what business areas have gaps that could be leveraged as potential new upselling opportunities?
15.
As you said, as Salesforce focuses on profitability, it might be harder to go out and make multibillion-dollar acquisitions. Looking across the existing product portfolio, have any of the hubs or specific business segments not been leveraged very well? Has any part of the portfolio not been added as a module by a lot of people? Will sales and service continue to drive most of the revenue? Where is there most white space and opportunity?
16.
What about on the customer side? Tech has always been Salesforce’s forte, but other verticals such as travel, hospitality and manufacturing potentially aren’t facing the same headwinds. What traction have you seen the company gain there? Is there enough meaningful expansion opportunity to drive growth and account for some of the missing revenue that won’t be attained from the tech sector, at least over the next couple of quarters?
17.
Ultimately, in a couple years from now, do you think Salesforce will be primarily a tech-driven tool, in terms of industries, or do you think the airline and manufacturing industries could grow in the company’s overall revenue contribution percentage? Is enough being done to prop up growth during a tougher time for tech?
18.
For one of the first times in a while, Salesforce didn’t provide fiscal year guidance. At the end of Q3 FY23, the company didn’t forecast but said, “There’s a lot of uncertainty in the market. We’re not comfortable predicting right now.” You said you think 2023 will be a year where growth doesn’t re-accelerate because of the focus on profitability, but how do you read into the lack of guidance?
19.
Beyond cost-cutting or lay-offs, what steps could investors or people inside Salesforce potentially say need to be taken?
20.
What’s your outlook for M&A? Salesforce has always been active and you mentioned a couple of deals that could be pursued. Do you think it’s a mistake for the company to not be more active right now, understanding there are a lot of deflated software valuations out there and it has a bed of cash? Do you think it should be aggressive and acquire a bunch of AI tools during this down year? Should it do a lot of building so that it can really step forward into 2024, which is potentially a year for accelerated growth?
21.
What’s your overview of Salesforce’s international growth? The company’s Q3 FY23 earnings report indicated that international performed even worse than US – understandable given the headwinds we’re all feeling. Is this area being overlooked in terms of potential revenue impacts over the next 12 months? What are your thoughts about the revenue trajectory overseas or competitive landscape?
22.
What other key risks for Salesforce do you think investors should be paying attention to right now?
23.
What is your 1-3-year outlook for Salesforce? How might the company handle 2023 and what are you expecting beyond that?
24.
Are there any other points you want to note about Salesforce?
