Tag: Salesforce

Tech Layoffs Surge: Why Salesforce (CRM) Could Emerge Stronger Amid Industry Cuts

Posted on by The INO.com Team

The tech sector, once a powerhouse of growth and high-paying jobs, has seen a dramatic shift, with many leading firms cutting thousands of positions. Companies such as Microsoft Corporation (MSFT), Meta Platforms (META), Amazon.com (AMZN), and Alphabet Inc. (GOOGL) have scaled back their workforce to streamline operations amid a challenging economic environment. Salesforce, Inc. (CRM), the world’s leading provider of customer relationship management software, is no exception, implementing layoffs and cost-cutting measures to bolster financial efficiency. Yet, despite the shake-up, Salesforce appears better equipped than many peers to navigate this uncertain terrain, backed by a robust product lineup and a surging demand for cloud solutions.

The question is whether Salesforce, after these adjustments, can leverage its unique market position and emerge stronger. Financial data from recent quarters suggests that while challenges remain, Salesforce’s adaptability, combined with its essential suite of services, may indeed pave the way for a resilient comeback.

Operational Efficiency in a Tough Market

For Salesforce, recent cuts are part of a broader effort to optimize operations and increase profitability. In Q2 of fiscal year 2025, Salesforce reported an operating margin of 19.1% GAAP and a non-GAAP margin of 33.7%, marking a 210 basis point improvement over the previous year. This improvement aligns with Salesforce's focus on "disciplined profitable growth," a phrase used by CFO Amy Weaver in the earnings press release to emphasize the company’s long-term strategic goals. By reducing workforce redundancies and consolidating office spaces, Salesforce aims to strengthen its bottom line while continuing to invest in high-growth areas such as artificial intelligence (AI).

In addition to workforce reductions, Salesforce has introduced AI-driven efficiencies through its new Agentforce platform, which aims to automate a variety of customer interactions across industries. This innovation allows Salesforce to provide value to customers while easing operational demands. These measures collectively contribute to Salesforce’s projected operating cash flow growth of 23-25% for the fiscal year, a solid indicator of the company’s commitment to streamlining operations for sustained profitability.

Salesforce’s Market Position and Cloud Demand

Salesforce’s resilience in the face of economic turbulence is also due in part to the indispensable nature of its CRM and cloud offerings. Despite the economic downturn, the company reported a revenue of $9.33 billion for Q2 2025, an 8% year-over-year increase that was boosted by its robust Subscription and Support segment, which grew 9%. Demand for CRM services remains essential for businesses striving to retain customers and optimize marketing, sales, and customer service processes. As Marc Benioff, CEO of Salesforce, noted, “In Q2, we delivered strong performance across revenue, cash flow, margin, and cRPO,” underscoring the company’s momentum in capturing market share during tough times.

The rise of AI and data analytics has further entrenched Salesforce as a go-to provider for digital transformation. Its Data Cloud, reportedly the fastest-growing product in Salesforce’s history, processed over 2.3 quadrillion records in Q2, demonstrating the massive scale at which businesses now rely on data integration. This data-centric growth positions Salesforce as a crucial partner for companies looking to transition into a more data-informed operational model. Moreover, Salesforce’s emphasis on AI through tools like Agentforce aligns well with current market trends, allowing the company to address both present and future enterprise needs.

Investment Risks

While Salesforce is positioned for long-term growth, investors should be aware of certain risks. First, competition in the CRM space has intensified, with Microsoft Dynamics 365 and SAP vying for market share, especially among large enterprises. Both companies have invested heavily in AI and cloud technologies, putting pressure on Salesforce to continuously innovate to maintain its leadership.

Additionally, an economic downturn could lead to budget cuts across enterprises, especially in IT spending. Salesforce’s enterprise clients may prioritize cost-saving measures, potentially leading to slower adoption of new Salesforce products. As noted in the company’s earnings materials, a reduction in customer spending could impact its recurring revenue growth. However, Salesforce’s diverse product offerings, including high-demand services like Sales Cloud and Service Cloud, help buffer against a significant decline in any single area.

Another concern is Salesforce's reliance on acquisitions, which can introduce integration challenges and operational complexities. In recent years, acquisitions of Tableau, Slack, and Mulesoft have expanded Salesforce’s suite of offerings but have also added pressure on the company to ensure cohesive integration. With the ongoing layoffs, Salesforce must balance these integration efforts carefully to avoid disruptions in its offerings or customer experience.

Investor Takeaway

For investors evaluating Salesforce, the current market conditions and Salesforce’s operational strategies present both challenges and opportunities. The company’s cost-cutting measures, coupled with strategic investments in AI and cloud solutions, are expected to drive higher margins and sustainable growth. Its solidified position as the number one CRM provider by revenue, a title it has held for 11 consecutive years, underscores Salesforce’s resilience and market dominance.

In a volatile tech market, Salesforce offers a compelling mix of growth potential and defensive qualities, thanks to its essential business services and expanding AI capabilities. The stock may be particularly attractive to those with a long-term investment horizon, as Salesforce’s disciplined approach to profitability and innovation could translate into substantial returns once the economic landscape stabilizes. Investors looking for exposure to cloud-based AI should consider Salesforce’s potential to continue leading in this space despite the risks inherent in an evolving tech industry.

Salesforce (CRM) vs. Alphabet (GOOGL): AI's Role in Tech Layoffs Unveiled

Posted on by The INO.com Team

Since the launch of ChatGPT in November 2022, GenAI has been reshaping the future of work. From automating routine tasks to transforming entire job roles, generative AI is making a significant impact across multiple industries. A rapid acceleration of task automation could assist organizations in driving labor cost savings and boosting productivity.

If generative AI delivers on its promised capabilities, the labor market could face considerable disruption. Using data on occupational tasks in the U.S. and Europe, Godman Sachs Global Investment Research finds that about two-thirds of today’s jobs are exposed to some degree of AI automation. And this technology could substitute up to one-fourth of current work.

Goldman Sachs estimates that GenAI will eventually automate nearly 300 million of today’s full-time jobs globally.

AI’s Role in Latest Tech Layoffs

With just a month into the new year, tech layoffs are starting to pile up; however, analysts consider this a new normal for Silicon Valley in a considerable pivot to AI. The job cuts are not on the same scale as in late 2022 and early 2023 when tech companies got rid of thousands of employees, a blowback from the frenzied hiring that took place during the pandemic when everyday life turned digital.

According to layoffs.fyi, a California-based website that tracks the tech sector, the industry lost around 160,000 jobs last year. So far this year, tech layoffs are at nearly 24,584, the site showed, from 93 companies.

Layoffs.fyi estimates that approximately 20% of job cuts are brought on by AI and restructuring associated with it. Moreover, Silicon Valley jobs are on the front line, with some coding tasks primarily carried out by generative AI.

Cloud-based software provider Salesforce, Inc. (CRM) announced that it will be laying off about 700 employees, roughly 1% of its global workforce, adding to a brutal string of tech layoffs at the start of 2024. This move comes amid ongoing cost-cutting pressures from investors, including activist shareholders like Elliott Management, to boost its profit margins.

A year ago, CRM lowered its headcount by 10% as a part of its rebalancing efforts after a pandemic-era hiring boom.

Despite the recent cuts, Salesforce is still reportedly hiring for 1,000 open roles across the company, indicating that these layoffs could be a part of an adjustment in its workforce. The company’s focus is directing spending toward growth.

An unnamed source cited in the Wall Street Journal report that the latest round of layoffs could be more of a routine adjustment to the company’s headcount rather than a reactive measure to ongoing economic challenges.

Earlier this month, another tech company, Alphabet Inc. (GOOGL), laid off hundreds of employees across the company as it continues to push for efficiency and focus on its biggest product priorities and significant opportunities ahead.

According to the company, the job cuts will impact employees within Google’s hardware, voice assistance, and central engineering teams. Also, other parts of the tech company were affected.

This layoff announcement marks the latest cost-cutting effort at Google as it continues to work to rein in the drastic headcount growth that took place during the pandemic. In January last year, Google cut its workforce by 12,000 employees or nearly 6% of its employee count. Later in the year, the company made other cuts to its recruiting and news divisions.

Moreover, Google shifted its focus to prioritize developments in AI, launching products such as chatbot Bard and the large language model (LLM) Gemini as it aims to keep up with rivals, including Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN).

This season’s tech layoffs are being framed more as restructuring rather than cutting down from prior over-hiring efforts; suggesting that even if employees lose their jobs, there could be some security within the industry more broadly. So, investors shouldn’t worry much about the recent job cuts.

Shares of CRM have gained nearly 27% over the past six months and more than 74% over the past year. Meanwhile, GOOGL’s stock has surged more than 14% over the past six months and approximately 55% over the past year.

Now, let’s review the fundamentals of CRM and GOOGL in detail:

Latest Developments

On January 14, 2024, CRM, at NRF 2024, announced new data and AI-powered tools for retail to help businesses drive efficiency and deliver connected shopping experiences. The Einstein 1 Platform will power these new retail innovations.

With generative AI built into Commerce Cloud and Marketing Cloud, retail merchandisers and marketers can tap into these generative tools with a real-time understanding of customer behavior and preferences to optimize every customer interaction — enhancing loyalty, boosting revenue, and driving employee productivity.

Also, on December 14, 2023, Salesforce unveiled major updates to its Einstein 1 Platform, adding the Data Cloud Vector Database and Einstein Copilot Search. Data Cloud Vector Database will unify all business data, including unstructured data like PDFs, emails, and transcripts, with CRM data to allow the grounding of AI prompts and Einstein Copilot.

Einstein Copilot Search will offer AI search capabilities to deliver accurate answers from Data Cloud instantly in a conversational AI experience, thereby driving productivity for all business users.

For GOOGL, 2023 was a remarkable year of significant advances in AI and computing. On December 6, Google launched its largest and ‘most capable’ AI model, Gemini, which will be in three different sizes: Ultra, Pro, and Nano.

Enterprises could use Gemini for advanced customer service engagement through chatbots and product recommendations and identifying trends for companies looking to advertise their products. Also, it could be used for content creation.

In November, Google further announced a new DeepMind model, Lyria, in partnership with YouTube. Lyria is an advanced AI music generative model that will create vocals, lyrics, and background tracks mimicking the style of famous artists. This model is available on YouTube through two distinct AI experiments – DreamTrack for Shorts and Music AI tools.

Last Reported Quarterly Results

CRM’s total revenues increased 11.3% year-over-year to $8.72 billion for the fiscal third quarter that ended on October 31, 2023. Its gross profit was $6.57 billion, up 14.2% from the year-ago value. Its income from operations rose 226.3% from the prior year’s quarter to $1.50 billion. The company’s free cash flow came in at $1.37 billion, an increase of 1,088% year-over-year.

In addition, Salesforce’s non-GAAP net income grew 47.9% from the previous year’s period to $2.09 billion. Its non-GAAP EPS came in at $2.11, surpassing the consensus estimate of $2.06 and up 50.7% year-over-year.

For the third quarter that ended September 30, 2023, GOOGL reported revenue of $76.69 billion, compared to analysts’ estimate of $75.73 billion and up 11% year-over-year. Its income from operations grew 24.6% from the prior year’s quarter to $21.34 billion. Its income before income taxes rose 30.6% year-over-year to $21.20 billion.

Google parent Alphabet’s net income increased 41.5% year-over-year to $19.69 billion. It posted net income per share of $1.55, compared to the consensus estimate of $1.45, and an increase of 46.2% year-over-year. Further, as of September 30, 2023, the company’s cash and cash equivalents stood at $30.70 billion, compared to $21.88 billion as of December 31, 2022.

Past And Expected Financial Performance

Over the past three years, CRM’s revenue has increased at a CAGR of 18.7%, and its EBITDA has grown at a 43.4% CAGR. The company’s normalized net income has increased at a CAGR of 188.3% over the same time frame, and its levered free cash flow and total assets have improved at CAGRs of 24.8% and 15.5%, respectively.

Analysts expect CRM’s revenue for the current year (ending January 2024) to increase 11% and 56.5% year-over-year to $34.79 billion and $8.20, respectively. For the fiscal year ending January 2025, the company’s revenue and EPS are expected to grow 10.9% and 16.5% year-over-year to $38.57 million and $9.55, respectively.

GOOGL’s revenue and EBITDA have grown at CAGRs of 20.1% and 26% over the past three years, respectively. Its net income and EPS have improved at respective CAGRs of 23.2% and 26.3% over the same timeframe. Also, the company’s levered free cash flow has increased at a CAGR of 36% over the same period.

For the fiscal year ending December 2024, GOOGL’s revenue and EPS are estimated to increase 10.8% and 15.4% year-over-year to $340.50 billion and $6.69, respectively. Likewise, Street expects the company’s revenue and EPS for the fiscal year 2025 to grow 10.5% and 15.6% from the prior year to $376.34 billion and $7.73, respectively. 

Profitability

In terms of the trailing-12-month EBIT margin, CRM’s 15.87% is 243.7% higher than the industry average of 4.62%. Its trailing-12-month gross profit margin of 74.99% is 54.8% higher than the 48.43% industry average. Moreover, the stock’s trailing-12-month net income margin of 7.63% is significantly higher than the 2.04% industry average.

GOOGL’s trailing-12-month gross profit margin of 56.12% is 15% higher than the 48.81% industry average. Its trailing-12-month EBIT margin of 27.42% is 226.8% higher than the 18.39% industry average. Likewise, the stock’s trailing-12-month net income margin of 22.46% is 541.4% higher than the industry average of 3.50%.

Bottom Line

The tech industry remains focused on trimming costs via job cuts. More than 20,000 tech employees have been laid off so far in 2024. CRM is the latest tech company to announce about 700 layoffs. However, the company still has plenty of job openings, roughly 1000, suggesting that these cuts might not be a drastic strategy shift but a routine labor force adjustment.

Similarly, tech giant Google signaled layoffs this month. Google CEO Sundar Pichai warned employees of more job cuts this year as the company continues to shift investments toward areas like AI. In a memo titled “2024 priorities and the year ahead,” Pichai stated that the company has ambitious goals and will be investing in its big priorities in 2024.

“The reality is that to create the capacity for this investment, we have to make tough choices,” Pichai said. For some teams, that means eliminating roles, which includes “removing layers to simplify execution and drive velocity,” he added.

Many fear that these job cuts could be related to Google’s rollout of AI across its advertisement department, effectively witnessing the technology replace humans. Also, given Salesforce’s heavy investments in AI, people can’t help but wonder if the technology could be threatening its workforce.

In today’s digital era, AI undoubtedly stands out as one of the most influential forces shaping the future of work. AI technology is making its dramatic impact felt, especially across the tech industry, from automating business operations to transforming entire job roles.

While some tasks/jobs are being automated, replacing humans, new roles are emerging with AI integration. Tech companies’ increased focus on AI is leading to a hiring surge in this area while other sectors face layoffs.

This season’s job cuts in the tech industry are viewed more as restructuring efforts rather than navigating economic challenges or cutting down from previous over-hiring during the pandemic. So, the latest tech layoffs should be the least of investors’ worries, and they can continue to hold CRM and GOOGL shares. 

Is Salesforce.com (CRM) THE Stock to Buy Before Earnings?

Posted on by The INO.com Team

Customer relationship management technology provider Salesforce, Inc. (CRM) delivered earnings and revenue beat in the first quarter and raised its full-year 2024 earnings guidance. The company’s first-quarter revenue was $8.25 billion, an increase of 11% year-over-year and above $8.18 billion expected by analysts, according to Refinitiv.

CRM’s adjusted earnings for the quarter totaled $1.69 per share, up 72.5% year-over-year, compared to the $1.61 per share consensus among analysts polled by Refinitiv.

“Q1 represented another strong step forward as we accelerate our transformation and profitable growth strategy,” said Amy Weaver, CRM’s President and CFO. “Our team delivered another double-digit growth quarter on the top and bottom line as we help customers increase productivity, drive efficiency, and become AI-first companies.” She added.

The company is set to release its second quarter fiscal year 2024 results on Wednesday, August 30, 2023, after the market's closing. For the second quarter, CRM expects adjusted earnings of $1.89 to $1.90 per share and revenue of $8.51 billion to $8.53 billion. Analysts surveyed by Refinitiv projected $1.70 in adjusted EPS and $8.49 in revenue.

Following a solid first-quarter performance, CRM raised its earnings forecast for the 2024 full year but left its revenue forecast intact. The company expects adjusted earnings per share of $7.41-$7.43, compared to the prior guidance of $7.12-$7.14. Also, it calls for $34.70 billion in revenue for the fiscal year 2024.

Analysts polled by Refinitiv expect full-year adjusted earnings of $7.14 per share and revenue of $34.65 billion.

Marc Benioff, Chair and CEO of Salesforce, said that the company “significantly exceeded” its operating margin target for the first quarter. CRM is now expecting an adjusted operating margin of 28% for the 2024 fiscal year, an increase of 1 percentage point from the 27% forecast it provided in March.
“At the same time, we are leading the next major revolution in CRM — infusing trusted, secure generative AI across our entire product portfolio.

Salesforce's generative AI ecosystem wields Einstein GPT, Slack GPT, and Tableau GPT, delivering trusted power across our product portfolio. Our Salesforce GPT Trust Layer will shield customer data, enabling productive automation and intelligent enterprise enhancements securely,” Benioff added.
However, some challenges are being faced by CRM. Clients are looking carefully at deals that are taking longer to close than they were in the past, said Chief Operating Officer Brian Millham on a conference call with analysts. The company is now looking at how to automate the selling process on the low end of the market and make its salespeople more productive, he added.

During the first quarter, “our professional-services business started to see less demand for multiyear transformations and in some cases, delayed projects as customers focus on quick wins and fast time-to-value,” Millham said.

Despite these near-term challenges, shares of CRM saw strong returns Friday afternoon, sending the Dow Jones into positive territory. Moreover, CRM’s stock has gained close to 30% over the past six months and more than 55% year-to-date.

Here’s what could influence CRM’s performance in the upcoming months:

Rising Corporate Spending on Software

CRM sells software under a subscription model. The company’s software assists businesses in organizing and handling sales operations and customer relationships. Salesforce has expanded into marketing, e-commerce, and analytics.

According to the forecast by Gartner, worldwide software spending is projected to total $922.75 billion, an increase of 13.7% from 2022. The software segment will witness double-digit growth as enterprises boost utilization and reallocate spending to core applications and platforms that support efficiency gains, including customer relationship management (CRM) and enterprise resource planning (ERP) applications.

Therefore, growing enterprise spending on digital transformation projects remains a significant tailwind for CRM stock.

Positive Recent Developments

On June 29, CRM introduced generative AI capabilities for Sales Cloud and Service Cloud to transform how sellers and service teams work and interact with customers. Sales GPT and Service GPT would bring the power of secure generative AI and real-time data from Data Cloud to empower teams to close deals faster, anticipate customer needs, and boost productivity.

On June 12, Salesforce unveiled AI Cloud, bringing the trusted generative AI to the enterprise. AI Cloud is a suite of capabilities that would supercharge customer experiences and company productivity by bringing together AI, data, analytics, and automation to offer trusted, open, real-time, generative AI that is enterprise-ready.

AI Cloud also includes the brand-new Einstein GPT Trust Layer, which sets a new industry standard for trusted enterprise AI, providing the benefits of genitive AI while offering data privacy and data security. Customers such as AAA-The Auto Club Group, Guccu, Inspirato, and RBC US Wealth Management are noticing the value of CRM’s new AI-powered capabilities.

Also, in the same month, CRM announced Marketing GPT and Commerce GPT, combining generative AI with trusted, real-time data from Data Cloud, transforming how companies connect with their customers by personalizing every campaign and shopping experience. Customers like Rossignol are using Salesforce to drive personalization at scale with AI, data, and CRM.

Robust Financials

For the fiscal 2024 first quarter that ended April 30, 2023, CRM’s revenues grew 11.3% year-over-year to $8.25 billion, and its gross profit was $6.12 billion, an increase of 14.1% year-over-year. Its income from operations came in at $412 million, compared to $20 million in the prior year’s quarter.
Furthermore, the company’s non-GAAP net income was $1.67 billion or $1.69 per share, representing increases of 70.5% and 71.4% year-over-year. Its free cash flow rose 21.5% from the year-ago value to $4.25 billion.

Solid Historical Growth

Over the past three years, CRM’s revenue and EBIT grew at CAGRs of 20.9% and 168.5%, respectively. Its normalized net income increased at a CAGR of 176.6% over the same period. Also, the company’s total assets and levered free cash flow grew at 20.4% and 26.5% CAGRs over the same time frame, respectively.

Favorable Analyst Estimates

Analysts expect CRM’s revenue for the fiscal year (ending January 2024) to grow 10.5% year-over-year to $34.65 billion. The consensus EPS estimate of $7.45 for the ongoing year indicates a 42.2% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 10.9% and 21.2% from the previous year to $38.41 billion and $9.03, respectively.

Bottom Line

The global leader in CRM topped first-quarter revenue and earnings estimates and lifted its full-year 2024 earnings guidance. Analysts seem highly bullish about the company’s growth prospects as it is committed to bolstering its product offerings by incorporating generative AI.

Generative AI’s significant potential is expected to boost the company’s profitability and growth. As per a report by Bloomberg Intelligence (BI), generative AI is projected to become a $1.3 trillion market by 2032, growing at a CAGR of 42%. Moreover, increasing demand for AI products could add around $280 billion of new software revenue.

CRM, expected to report fiscal 2024 second-quarter results on August 30, 2023, will likely beat analysts’ revenue and earnings expectations, building on its solid business momentum.

Given CRM’s solid financial performance and promising growth prospects, it could be wise to invest in the stock before its upcoming earnings.