Categories Analysis, Technology
Salesforce shifts to restructuring mode after a weak year. What to expect?
Operating cash flow rose to a record high in the fourth quarter when revenues increased across all business segments
After expanding constantly over the past decade, Salesforce.com Inc (NYSE: CRM) is currently focused on streamlining the business and increasing profitability. Like most tech firms, the software company is feeling the pinch of the dip in enterprise spending due to the Federal Reserve’s aggressive monetary policy stance and elevated inflation. The ongoing challenges have reversed the benefits of the widespread cloud adoption triggered by the pandemic, to some extent.
The company’s stock got a major boost after this week’s impressive earnings report and it started Thursday’s session sharply higher. The good news is that the stock is projected to keep growing in the coming weeks and cross the $ 200 mark this year. For those looking for an appropriate entry point, probably now is the time to invest in Salesforce.
Though overall growth slowed last year, salesforce looks well-positioned to benefit from the thriving cloud market. The general slowdown in the tech sector, hurt by the economic downturn, has affected Salesforce also. The customer relationship management platform recently announced a restructuring program that would include a 10% reduction in its workforce and the closure of offices in certain markets, to better align the business with the changed market environment.
The reorganization comes on the heels of two senior executives leaving the company in quick succession — co-chair and CEO Bret Taylor and Stewart Butterfield, CEO of Slack that joined the Salesforce fold a few years ago. When it comes to tackling external headwinds, the company’s balanced portfolio comes in handy. Since all business segments contribute almost equally to revenues, the ups and downs in a particular area do not materially impact the top line.
Having entered the new fiscal year on a high note, the company predicts strong revenue and earnings performance for the first quarter and fiscal 2024. It ended 2023 with record-high cash flows of $7.1 billion, which is up 19% year-over-year. That will allow the management to return a portion of the cash to shareholders in the form of share buybacks and dividends.
From Salesforce’s Q4 2023 earnings conference call:
As we entered our fourth quarter, we recognized that we need to radically accelerate the transformation plan time frame. We needed to press the hyperSpace button and bring the two-year goals forward quickly and exceed them now. We immediately put into place an accelerated transformation plan in four areas; short-term and long-term restructuring of the company, improving profitability and productivity, prioritizing our core innovations, and a deeper and even stronger relationship with our shareholders.
Fourth-quarter profit exceeded analysts’ forecast, continuing the long-term trend of consistently beating or matching estimates. However, revenues missed the Street view despite increasing to $8.4 billion. All the operating segments and geographical divisions grew in double digits. Supported by the 14% revenue growth, adjusted earnings more than doubled to $1.68 per share.
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CRM traded sharply higher in the early hours of Thursday’s session, continuing the steady growth that began in the final weeks of 2022. It has gained a whopping 42% so far this year.
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Salesforce is seeing pressure from the Federal Reserve’s aggressive monetary policy stance and increased inflation. The company is reorganizing to face these challenges, and is projected to earn strong profits in the coming years.