Investors give Salesforce a 4% slap on back for raising prices

Just think of the margins

Salesforce has announced its first price hikes in seven years, increasing the price of software services used by businesses to support sales and marketing by up to ten percent.

Investors responded to the move by raising the CRM giant's share price by 4 percent on Tuesday.

Salesforce released a statement on the increases, saying: "New list pricing will go into effect globally for new customers and existing customers purchasing new clouds in August 2023. The new list prices will be Professional Edition $80 (up $5), Enterprise Edition $165 (up $15) and Unlimited Edition $330 (up $30). These editions will be priced comparably in other currencies. Similar list price increases will go into effect for Industries, Marketing Cloud Engagement and Account Engagement, CRM Analytics and Tableau."

Reuters attributed the increase to investment in AI technologies with which Salesforce says it has been enhancing its CRM technologies. In June, the company launched AI Cloud, a suite of capabilities designed to weave generative AI across its applications and workflows.

However, the company has also come under pressure to improve its margins.

In February, reports emerged of an internal strategy document describing an aim to "drive solid operating margin improvements and sustainable growth."

Margins have also been the focus of activist investors, which began to take an interest in Salesforce from January when Elliott Management took a multibillion-dollar stake in the firm. Third Point Capital, Mason Morfit's ValueAct, Jeff Ubben's Inclusive Capital, and Dan Loeb's Third Point LLC have also invested.

Salesforce had already targeted a 25 percent operating margin, up from the 20.4 percent it currently records. However, in a report last year, financial analyst Starboard suggested Salesforce should be targeting adjusted operating margins of 31.7 percent to get it closer to those enjoyed by Oracle (43.3 percent) and Microsoft (46.6 percent).

Salesforce has also moved to reduce its costs. At the beginning of 2023, the company launched a drastic restructuring plan to cut 10 percent of its workforce at a cost of around $1.4 billion to $2.1 billion. The company's ranks swelled early in the pandemic, rising from 35,000 in 2019 to more than 70,000 last year.

As well as SaaS price increases, enterprise users were already set to see their costs increase in cloud infrastructure. Last year, analyst firm Canalys forecast that public cloud prices would increase by 30 percent in Europe through 2023.

Microsoft has also increased its prices in Asia and India. From February 1, Indian rupee prices for commercial on-premises software increased by 4.5 percent, online services will increase by 9 percent, and Get Genuine Windows Agreements will increase by 11 percent.

Across the broader software market, there is evidence that other vendors are also increasing prices. Research from The ITAM Review has found that the ongoing effects of COVID-19, rising inflation, soaring energy costs, and geopolitical instability have fueled price hikes of up to 24 percent. ®

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