Salesforce (CRM) — Earnings Review – December 1, 2023

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Salesforce (CRM) — Earnings Review

Salesforce is the 3rd largest enterprise software firm on the planet. It provides a broad suite of products to help clients optimize customer interactions, sales and marketing efficacy. The overarching niche is called customer resource management (CRM). Its products are delivered through dedicated cloud services (like the Service, Marketing and Sales Clouds) as well as other popular tools like Tableau (acquired in 2019).


  • Met revenue estimates & beat guidance by 0.1%. Its 17.2% 3-year compounded annual growth rate compares to 18.6% as of last quarter and 19.2% 2 quarters ago.
  • Current Remaining Performance Obligation (cRPO) growth of 14% was well ahead of its 11% growth guidance.

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases


Margin expansion is the current Salesforce story. What had been a company focused on growth and M&A is now laser-focused on delivering operating leverage. It has effectively tightened its belt and seen margins explode higher. In testament to its new philosophy, it dissolved its M&A team to focus on organic execution. The margin explosion has been far more meaningful than the company or virtually any analyst expected.

  • Beat EBIT estimates by 3.0%.
  • EBIT is operating income.
  • Beat free cash flow (FCF) estimates by 100%.
  • Beat $1.04 GAAP earnings per share (EPS) estimates & beat its same guide by $0.21 each.
  • Beat $2.06 EPS estimates & beat its same guide by $0.05 each.

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Bps = basis point = 0.01%

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Q4 Guidance

“We continue to assume a measured customer buying environment.” – CFO Amy Weaver

  • Slightly missed Q4 revenue estimates.
  • Beat $1.04 in Q4 GAAP EPS by $0.22 or 21.5%.
  • Beat $2.18 in Q$ EPS by $0.07 or 3.2%.

Based on the Q3 beat and Q4 guidance, annual revenue guidance was reiterated. Profit guidance was raised across the board (most meaningfully for GAAP EPS). EBIT margin was raised from 30% to 30.5%. CEO Marc Benioff jokingly told CFO Amy Weaver on the call that she “better beat that.”

Balance Sheet

  • $11.8 billion in cash & equivalents.
  • $9.4 billion in debt ($1 billion is current).
  • Share count fell by 2.5% Y/Y.
  • Year to date buybacks of $5.93 billion vs. $1.68 billion Y/Y.

Call & Release Highlights

Key Products, Definitions & Progress (Salesforce 101)

Salesforce offers a variety of cloud services to its customers. These all enable digital management and optimization of a certain piece of a firm’s customer relationships. There’s a Sales Cloud which perfects consumer touch-points. There’s a Commerce and Marketing Cloud to build online storefronts and augment promotional activity. There’s a Service Cloud to handle customer issues and inquiries. This directly competes with firms like Shopify and Wix. There’s also a platform cloud which includes Slack.

Most recently, it debuted its Data Cloud. This is an aggregated client database to ingest, organize & glean insight from 1st party data. MuleSoft and Tableau are both key pieces of this Data Cloud. MuleSoft integrates apps and data to allow for management of these products and interfaces within Salesforce. Tableau is a data visualization tool to create automated progress reports and suggestions for leveraging findings. The Data Cloud competes with formidable players like Databricks and Snowflake and is currently its fastest growing cloud (aside from industry-specific products). Finally, as alluded to, it offers industry-specific clouds for sectors like healthcare. These are more customized to meet specific regulatory and operational needs. All of these clouds and products make up the firm’s subscription & support revenue which represents 93% of its total business. Professional services make up the rest.

Separately, Salesforce offers a product called Einstein. This is a full set of AI tools including outcome prediction, chat bots, image recognition, sales and sentiment analytics and more. It’s considered a general-purpose AI platform infused into various Salesforce products. Most recently, through an OpenAI partnership, it debuted Einstein GPT. Einstein existed before the GenAI wave but is now getting an upgrade thanks to it. Einstein GPT allows Salesforce clients to plug into language models (including OpenAI, Anthropic and Cohere) to make workflows more productive, intuitive, conversational and automated. It infuses familiar GenAI services across products like Slack and pretty much all others. It features a low code tool set to reduce the barrier for non-experts to build applications and boasts expert-level tools to build more complex apps. 17% of the Fortune 100 now uses Einstein GPT.

Recent growth by cloud category

  • Sales Cloud revenue rose 10% Y/Y vs. 12% Y/Y last quarter and 13% Y/Y 2 quarters ago.
  • Service Cloud revenue rose 11% Y/Y vs. 12% Y/Y last quarter and 13% Y/Y 2 quarters ago.
  • Platform Cloud revenue rose 11% Y/Y vs. 11% Y/Y last quarter and 12% 2 quarters ago.
  • Marketing & Commerce Cloud revenue rose 8% Y/Y vs. 10% Y/Y last quarter and 10% Y/Y 2 quarters ago.
  • Data Cloud revenue rose 22% Y/Y vs. 16% Y/Y last quarter and 20% Y/Y 2 quarters ago.

Platform Play

Consistent readers know… the theme of this software earnings season has been the platform play cream rising to the top and separating from the pack. Salesforce is squarely part of that cream. Its ability to drive better software value, automation, efficiency and lower cost is standing out. Just like it did for ServiceNow… just like it did for CrowdStrike… just like it did for Workday… just like it did for Zscaler… just like it did for Microsoft. Greater value and lower cost is the only formula that’s working in this heightened budget scrutiny environment. Salesforce delivers that formula.

Need some evidence besides the overarching results? It enjoyed 80% Y/Y growth in $1 million+ deals. Last year’s concern over full suite, large-scale deal demand has vanished with that demand “coming back.” 9 of its 10 largest deals in the quarter included 6 or more cloud products. 9 of its 13 industry-specific clouds saw annual recurring revenue over 50% Y/Y.

Its Unlimited Plus (UE+) plan combines a lot of its products into a single subscription. Traction there has been wonderful and is delivering a 70% boost to average client spend.

Productivity & Macro

Salesforce’s Account Executive (AE) productivity soared 30% Y/Y. It has driven greater focus, enhanced go-to-market and located talent to optimize its selling process. Clearly that’s working. It has eliminated a large chunk of its manual quoting to remove steps to deal closure and is now enjoying the results in its soaring margin profile. Specifically, GAAP sales & marketing as a percent of revenue fell 600 bps Y/Y.

Macro headwinds remain as the “buying environment remains measured.”

The Data Cloud

As we’ve explored numerous times, GenAI models insatiably consume data. Salesforce’s Data Cloud meshes seamlessly with GenAI. Models are worthless without effective data seasoning. Salesforce, like Snowflake, tears down data silos to unleash a firm’s COMPLETE database. It’s hard to overemphasize how big a piece of its GenAI strategy truly is. Benioff called it the “foundation of every AI transaction and large deal for the quarter.” It is simply paramount for the firm to maintain its proclaimed position as the leading AI CRM. And traction is building. 6 of its 10 largest deals from the quarter included the Data Cloud while $1 million+ wins doubled Q/Q. That’ll work.

“It’s not like companies are going to run their AI off of Reddit or off of some kind of big public data set. They have to have their data set together to make AI work for them, and that is why the Data Cloud is so powerful for them.” – Founder/CEO Marc Benioff

Final Notes

  • Salesforce sees its “trust layer” as a key GenAI selling point. It separates and secures a customer’s data to eliminate impermissible access to it from model builders.
  • Salesforce products are available for purchase on the AWS marketplace as part of a deepening partnership. The two announced deeper product and AI integrations during the quarter.
  • It continues to selectively hire mainly within Data Cloud and AI roles.


This was another rock-solid quarter. Since the firm’s pivot to focus on margin expansion, growth has not suffered materially, and profit growth has far surpassed estimates. The same has been true for only the highest quality firms in tech. This is a wonderfully boring company in the best of ways. Elite leadership, stable growth at massive scale and more execution. As margin expansion from the pivot draws to a close, Salesforce will need to keep finding demand to deliver compelling profit compounding. There’s good reason to believe that it can. Well done.

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