Deals are being 'inspected by higher levels of management,' says Salesforce

Customers 'more measured' and this will continue, says CRM giant, but Snowflake lifts forecasts

Salesforce said last night it was seeing sales cycles stretch and was taking a "very deliberate" approach to hiring after it missed analysts' expectations for revenue growth.

The SaaS CRM giant posted revenue of $7.72 billion for the second quarter, an increase of 22 percent on the same period a year earlier. Net income fell to $68 million, down from $535 million in the same quarter last year, but the company did embark on a sales and marketing spending spree that went up to $3.4 billion from $2.7 billion.

But it was the forecasts for future earnings that upset investors, who instigated a 5.5 percent drop in the company's valuation after the sales forecasts were trimmed.

Salesforce said it would hit third-quarter revenue of between $7.82 billion and $7.83 billion. Although that might represent a 14 percent increase year-on-year, it was lower than analyst expectations of $8.05 billion, according to Bloomberg.

The company – an early adopter of the SaaS model in 1999 – shaved its revenue forecast for the year from $31.8 billion to $31 billion.

Speaking to investors, Salesforce execs put the cut down to two things: the strength of the dollar against other currencies – so-called headwinds – and more caution from buyers.

Marc Benioff, co-founder and CEO, said: "We see customers becoming more measured in the way they buy. Sales cycles can get stretched. Deals are inspected by higher levels of management. All of this, we began to start to see in July. Nearly everyone I've talked to is taking a more measured approach to their business. We expect these trends to continue in the near term and we reflected this in our guidance."

Bret Taylor, co-CEO, said that while "digital transformation" among customers remained a priority, they were shifting the focus "meaningfully towards productivity, efficiency, and time-to-value."

Amy Weaver, CFO, said Salesforce was also being a little more cautious with its spending, particularly around hiring. The company was holding onto its margins with a "more disciplined approach."

"In terms of the specific drivers, definitely continuing to take a measured approach and a very deliberate approach on hiring. We are prioritizing for customer-facing travel. And again, we are continuing to benefit from some of the decisions we've made over the last few years on real estate," she said.

The CRM giant decided to lease out 40 percent of its Salesforce West building at 50 Fremont Street recently, a whopping 350,000 square foot of office space which apparently has "room for roughly 1,750 workers." It also canceled its lease on approximately 325,000 square foot in the unfinished Parcel F tower last year as well as letting out parts of its Salesforce East tower at 350 Mission Street to Yelp and cosmetics chain Sephora, among others, according to real estate database wranglers at CoStar.

Back in February 2021, Brent Hyder, Salesforce president and chief people officer, said "the employee experience is about more than ping-pong tables and snacks" as he announced an end to the assumption that most staff would work from the office, and introduced a flexible working plan.

The pressures on Salesforce were not affecting all enterprise tech spending, though.

Snowflake, the cloud-oriented data warehouse firm, increased its guidance for the third quarter. Following second-quarter revenue of $497.2 million, up 83 percent year-over-year, the company said product revenue could be as much as $505 million in the following quarter compared to an estimated $501.1 million in numbers compiled by Bloomberg. ®