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Rude awakening for SaaS giants Salesforce, Workday as both find 20% growth isn't good enough for market

Yeah, you did great, but you should have done better

Salesforce shares slid yesterday despite posting revenues of $5.82bn for Q4 of its fiscal '21, up 20 per cent on the same period last year.

The SaaS CRM specialist joins Workday among cloud application vendors disappointing an insatiable stock market even though revenue growth was strong.

Income from operations for Salesforce's fourth quarter ended 31 Janaury was $193m, up from a loss of £36m in the same period for FY2020.

Salesforce reported revenue for the full fiscal year at $21.25bn, up 24 per cent compared with the previous year. Gross profit for the year was $15.8bn, up from $12.8bn a year earlier.

However, the consensus was that forecast profit for FY2022 was below expectations and the market reacted accordingly, prompting a fall of nearly 4 per cent in the cloudy CRM's biz's share price in extended trading.

The recent acquisition of workplace collaboration platform Slack for $27.7bn was also seen as a bit steep, although it might pay off in the long term.

Analyst Megabuyte said Salesforce had a "relatively vanilla performance" though found it notable that Salesforce had changed the shape of its cloud products over the last year. "When you look back to when Salesforce was founded, the driver for the company was essentially to get customer systems of record into the cloud."

However, CRM providers had moved on to focus on improving customer engagement and insight. "Salesforce's current [acquisition] strategy underlines this," the analyst firm said. "The question is can it successfully stick this all together to prevent itself from turning from the disrupter to the disrupted?"

Fellow SaaS enterprise software provider Workday also had a bad day at the market, despite ostensibly good results. Its Q4 ended 31 January 2021 brought total revenues of $1.13bn, nearly 16 per cent up on a year earlier. Subscription revenue also increased by 20 per cent to $1.01bn over the same period.

The burgeoning SaaS company, which makes cloud HR and finance applications on an in-memory database, still struggles to make a profit 15 years after it was founded. Operating loss for the final quarter was $73.3m, which had slimmed from $146.1m for the same period a year earlier.

For the full year, total revenues were $4.32bn, up 19 per cent on fiscal 2020. Operating losses halved to $248.6m.

Although the results beat market expectations - much like in the case of Salesforce, Workday shares also dipped about 4 per cent following the news.

The Megabuyte view was that Workday was resilient in subscription bookings in the face of the pandemic. While the company would look to accelerate growth, this would be at the expense of margins. ®

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