Chief Executive Marc Benioff said on Wednesday’s investor call that Salesforce’s board has disbanded its M&A committee and formed a new ‘business transformation committee.’
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If there is a Hawaiian word for “hustle,”
seems to have found it.
The cloud-software pioneer surprised investors Wednesday by delivering better-than-expected revenue and much better-than-expected adjusted operating profit for the fiscal fourth quarter ended January. Its forecast for the new fiscal year was a similar story, with adjusted operating margins projected to hit a record-high 27% after averaging 18% over the previous five years. Salesforce shares—up 26% already for the year on hopes that activist pressure would improve the company’s performance—jumped another 16% following the results.
The results mark a notable turn for a company that has been watching its business decelerate over the last few quarters following a pandemic-fueled jump in 2021. That slowdown has sparked a significant amount of internal drama at a company that has long touted “ohana”—the Hawaiian term for family—to describe its culture. Salesforce announced plans during the final month of the quarter to give 10% of that family its walking papers, and that seems only to be the beginning of the overhaul. The Wall Street Journal reported Tuesday that the company has cut ties with a 75-acre wellness retreat in Northern California and is even scaling back on the specialty baristas in its gleaming skyscraper headquarters in San Francisco.
Salespeople at Salesforce are under particular pressure given the unprecedented growth slump the company has been experiencing. But, rather than distracting them, the upheaval might even have lit a fire under their efforts. Billings, a measure that reflects business transacted during the quarter, jumped 13% year-over-year to nearly $14.6 billion. That was well above the 7% pace analysts had expected and a sharp uptick from the record-low 5% growth shown in the October period.
They will have to keep it up. Salesforce projected it would have 10% revenue growth in the current fiscal year, above the 9% expected by analysts—just barely keeping the company out of the single-digit growth range that typically marks a mature software business. That is ambitious in an environment that is seeing corporate customers sharply cutting back their spending ahead of a possible recession. Salesforce’s equally ambitious operating margin target for the current fiscal year will also likely force some changes at a company well known for breaking the bank to get deals signed. Sales and marketing expenses represented 40% of revenue in the most recent quarter—the lowest in more than a decade and 5 percentage points below the company’s average over the past five years.
Salesforce won’t be dipping into its well-used M&A playbook to juice the growth numbers either. Its torrid pace of acquisitions over the past several years has become a sore spot with inventors and a key argument for activists. Chief Executive Officer
Marc Benioff
said on Wednesday’s investor call that the company’s board has fully disbanded its M&A committee and has formed a new “business transformation committee,” suggesting that some of its past acquisitions could even end up on the block. This ohana has some more waves ahead.
Write to Dan Gallagher at dan.gallagher@wsj.com
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