For a long time Over time, almost every company was focused on growth in everything. Then, as the economy started to turn around last year, that focus shifted dramatically to profitability and being more financially sound. Salesforce was no different.
Salesforce has been spending big over the past years, acquiring companies like Slack for $27.7 billion, Tableau for $15.7 billion, and Mulesoft for $6.5 billion, effectively buying growth in the process. Meanwhile, during the pandemic, like other big tech companies that believe the work-from-home phenomenon will lead to cloud profits in the long term, Salesforce has hired a large number of employees, Increase the number of employees by 30% Between 2020 and 2022.
As the cost of doing business has increased as interest rates rise along with inflation and currency headwinds, they’ve had an impact on nearly every company’s revenue growth, including Salesforce.
Then last year, activist investors began to take a hard look at Salesforce, forcing the company to rethink its growth strategy in the wake of a changing economic landscape and activist demands for more financial discipline.
CEO Marc Benioff has steered the company through the turmoil by shifting its approach from its previous growth trend to one more focused on profitability. This meant cutting costs, which unfortunately led to 10% of the workforce being laid off. In addition, the company announced this last March Dissolving its Mergers and Acquisitions Committeewhich is a strong signal that the days of buying growth are over (at least for now).
For better or for worse, this approach appears to be working, with three consecutive quarters of growth at a rate of more than 10%. Wanderlust slumped in March after a quarter in which the company reported 14% year-over-year growth. It wasn’t quite a good quarter at 11% growth, but it beat Wall Street and even Salesforce’s own forecasts by a fair amount, leaving Benioff very satisfied during a post-earnings call with analysts.
“So, listen, as we shared with you during our last earnings call, Salesforce has really accelerated our transition to profitable growth.” he said during the call. “I think that’s very clear with the numbers, and I couldn’t be more excited, especially with this huge win at the top line and what our margin looks like today.”
A closer look at the numbers
Salesforce revealed a winning top and bottom line on Wednesday, beating expectations in terms of revenue and earnings. The company reported a total of $8.60 billion, ahead of an expected result of $8.53 billion. And she earned $2.12 per share, before expected adjusted income of $1.90 per share.
This revenue result represents 11% growth year over year. But what’s even more impressive is how much Salesforce has boosted its profitability. Net income rose from $68 million in the year-ago period to $1.27 billion in Salesforce’s most recent quarter.
These massive gains in profitability weren’t built on a one-time gain from non-operating results. In plain English, the company’s huge profit hike was achieved the old-fashioned way: keeping costs down while increasing revenues.