Salesforce Faces CEO Resignation Pressure Amid Earnings Concerns

Brat Taylor Co-CEO Resignation Puts Pressure on Stock Price

[Asia Economy Reporter Minji Lee] Information technology company Salesforce posted solid third-quarter earnings, but its stock price is on a downward trend. This is due to increased earnings uncertainty amid the economic recession.

Looking at Salesforce's stock price on the 4th, it fell more than 5% to $144.56 over the past week. After the third-quarter earnings announcement, uncertainties about the difficult economic environment and management risks following the resignation of Bret Taylor (Co-CEO) highlighted, causing a larger drop in the stock price.

Salesforce's third-quarter earnings showed revenue of $7.837 billion and operating profit of $1.707 billion, growing 14% and 31% respectively compared to the same period last year. Net income attributable to controlling shareholders increased by 10% to $1.398 billion. Revenue exceeded the guidance of $7.83 billion provided in the previous quarter.

By segment, subscription and support revenue was $7.2 billion, up 13.4% year-over-year. Professional services and other revenue grew 24.8% to $600 million compared to the previous year. Subscription and support revenue was $1.7 billion, up 11.6%, and the services segment grew 11.9% to $1.9 billion. Additionally, the platform and other segments increased 18% year-over-year to $1.5 billion, marketing and commerce segments grew 12% to $1.1 billion, and the data segment grew 13% to $1 billion.

By region, North and South America led growth with $5.361 billion, a 16% increase. Dongyang Kim, a researcher at NH Investment & Securities, explained, "The expansion of digital transformation among client companies sustained high growth in the CRM cloud market, and the service contract backlog also reached $40 billion."

A notable area in the earnings is the continued growth of the platform segment. Salesforce is strengthening its business platform and has been integrating Slack, a business collaboration software company acquired in 2020. Jaegu Kang, a researcher at Hanwha Investment & Securities, said, "In 2021, Salesforce launched Customer 360, which integrates with Slack's team collaboration platform, and customer adoption is increasing for cost efficiency. Slack's revenue increased 46% year-over-year, contributing to strong performance. Growth in analytics software Tableau and integrated platforms MuleSoft is also positive. Annual recurring revenue from customers adopting five or more Salesforce products expanded up to 20%. In September, Salesforce unveiled the real-time customer management program (CRM) Genie at the annual event 'Dreamforce 2022,' and is expected to accelerate strengthening of the CRM platform."

However, since the company's future earnings guidance falls short of market expectations, a conservative approach is advisable for the time being. The company projected fourth-quarter revenue of $8 billion, which is 0.6% below estimates. The annual revenue guidance was set at $30.9 billion to $31 billion, reflecting a negative foreign exchange impact of $900 million. This is 0.1% below market expectations. Adjusted operating margin was raised to 20.7%, reflecting improved profitability. Jaeim Kim, a researcher at Hana Securities, explained, "It is positive that the company is strategically focusing on profitability improvement, but there are differences in the timing of rebounds in contract signings across software sectors due to economic concerns. There is also some uncertainty about whether the CRM segment will show a clear response in the fourth-quarter earnings."

Researcher Jaegu Kang analyzed, "The resignation of CEO Bret Taylor, who led the Slack acquisition, may also cause investor anxiety. In a situation where the CRM platform is being strengthened, the replacement of a key figure is a burden, so it is better to assess the impact after the resignation before making investment decisions."