Marc Benioff has had a lot on his plate recently. The billionaire Salesforce CEO watched as rising interest rates, stubborn inflation, and slowing tech spending pushed shares of his cloud computing giant down nearly 60% from their November 2021 peak to a low of under $130 late last year. And activist investors—which often seek board seats and push for strategic changes at companies—are waiting in the wings amid criticism that Benioff has allowed costs to run rampant at his company. But despite the setbacks, a new focus on profitability has investors singing the CEO’s praises this week.
Wedbush tech analyst Dan Ives said Thursday that Salesforce delivered a “masterpiece quarter” this earnings season amid a “murky” economic backdrop.
“With activists swirling and Street frustration at a boiling point, Benioff & Co., with its back against the wall, delivered a monster quarter and guide for the ages that will silence the doubters this morning,” he wrote in a note to clients.
Salesforce surpassed analysts’ forecasts in the fiscal fourth quarter, delivering 14% year-over-year revenue growth and adjusted earnings per share of $1.68 compared with an expected $1.36. Ives said the “star of the show” was improving profitability, with non-GAAP operating margins—a common measure of profitability that excludes “one-time” transactions and that some criticize as potentially misleading—moving to 29% compared with consensus estimates for 22%. Shares of the cloud computing company soared over 11% on Thursday after the strong earnings report.
In a follow up conference call with investors Wednesday, Benioff said he has decided to “pull back” from his long-running goal to “just grow, grow, grow.”
The CEO has been criticized for his wild spending and celebrity lifestyle over the years—including reportedly paying Matthew McConaughey $10 million for “creative services” and turning off his phone during a luxurious 10-day “digital detox” trip to French Polynesia last year—but now he’s dead set on beginning a new era of efficiency at Salesforce.
After spending years building a work culture based on the Hawaiian tradition of “Ohana,” or family, at his company, there’s a new push for efficiency from Benioff amid recession fears, no matter the cost to employees.
“Profitability is truly our number one strategy,” he explained Wednesday. “That’s what I’ve been focused on with the management team.”
Benioff admitted to over-hiring during the pandemic, and after a few smaller rounds of layoffs in 2022, announced he would cut 10% of Salesforce staff earlier this year in a push to eliminate between $3 billion and $5 billion in costs.
Amy Weaver, Salesforce’s finance chief, called the past 90 days “very intense” on the company’s Wednesday earnings call, and Benioff added that he realized the company needed to “press the hyperspace button and bring the two-year goals forward quickly and exceed them now.”
Bank of America analysts, led by Brad Sills, said Salesforce’s latest earnings report was a step in the right direction, and reflects a “meaningful commitment to disciplined growth.” Sills reiterated his “buy” rating and raised his 12-month price target to $235 per share.
Ives also noted that Salesforce provided forward guidance that was “better than expected.” Management forecasted annual revenues of $34.6 billion and non-GAAP operating margins of 27% for the coming year, compared with $31.4 billion and 22.5% this year. After buying back $4 billion in stock over the past two quarters, Salesforce also announced an expanded buyback program that will allow for another $16 billion in share purchases. Ives holds an “outperform” rating on shares of Salesforce—akin to a “buy” rating—and raised his 12-month price target from $200 to $220 Thursday.
