Salesforce’s Earnings Show It’s Well Equipped to Weather a Downturn

• Salesforce reported earnings this week that were “better than feared,” analysts said.
• The results show that Salesforce is well positioned to get through a downturn, they said.
• The company is willing to rein in spending and has a strong business model, analysts said.

Wall Street is breathing a sigh of relief after Salesforce reported earnings on Tuesday that were “better than feared,” which showed the cloud-software giant was in a good position to weather a downturn.

Analysts looked to Salesforce’s earnings report to gauge how hard the downtown would hit the entire cloud-software industry, as software stocks have been hit hard in recent weeks amid a broader market downturn. Its report showed that its subscription business model, wide variety of products, and willingness to rein in spending when necessary made the company resilient, analysts said. 

Salesforce reported revenue of $7.41 billion, up 24% year over year. It beat analyst expectations for the quarter and lowered its revenue guidance for the fiscal year, while boosting its profit guidance. 

The results were “much better than feared,” Dan Ives, a Wedbush analyst, wrote in a note to clients. “Guidance which will be a major relief for tech investors showing that core enterprise demand is holding up well despite the macro and geopolitical swirls.” 

Still, Salesforce took cautious measures in response to the market downturn, showing that it’s “willing to be the company that will dial back on investing when necessary,” Rishi Jaluria, an RBC analyst, told Insider.

Executives addressed its move to slow hiring and put a hold on recruiting for some open roles to control expenses, which Insider recently reported.

“We’ve asked each leader to step up to really look across their business and to strategically prioritize their investments,” Amy Weaver, Salesforce’s chief financial officer, said on a call with analysts after the earnings were released. “We’re going to continue to hire, but we’re doing it at a much more measured pace, and we’re focusing the majority of our new hires on roles that will support customer success and the execution of our top priorities.”

In addition, Salesforce’s broad portfolio of products will help get it through the downturn, some say. As companies look to cut costs, Salesforce can offer a single platform to address various needs across a business, analysts said.

“In a really tight environment, companies need to figure out where to save on IT,” Jaluria said. “And if you can save your IT dollars by saying, ‘I’m going to just put everything on Salesforce and move away from some of these niche tools,’ I think that ultimately benefits Salesforce. 

Salesforce execs also highlighted its subscription model as a reliable source of business. Its subscription-based business model allows the company to see what customers will spend on software a few years into the future because big customers typically sign multiyear contracts with Salesforce. 

On the flip side, software companies that use consumption-based pricing models, like Snowflake, could suffer during the downturn as customers look to cut costs, Insider previously reported.

While Salesforce’s earnings provide relief, analysts are still cautious.

“I think it’s too soon to wave the victory flag,” Steve Koenig, an SMBC America analyst, said.

But the company is equipped to handle a downturn given the nature of its business and its focus on profitability, analysts said. That increased focus on profitability has investors more optimistic about the company’s course, Pat Walravens, a JMP analyst, told Insider. 

“Historically, Salesforce has been viewed as a big spender,” Walravens said. “And so from an investor standpoint, it’s a positive change to see this increased focus on profitability, and that’s the main reason the stock’s up.”

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