While Salesforce, Workday, and Snowflake each serve distinctly different parts of the cloud and AI marketplace, I expect all three to reveal accelerating growth rates when their fiscal-Q4 numbers come out next week.
When those companies reported their fiscal-Q3 results late last year, the CEOs of each vendor expressed unmistakable optimism about customer demand and the massive impact the GenAI revolution is having on tech spending. Of course, as I’ll point out below, that optimism was couched with varying degrees of cautionary tales, but, nonetheless, I believe we can expect Workday (Feb. 26) and Salesforce and Snowflake (both Feb. 28) to release impressive numbers for their fourth fiscal quarters ended Jan. 31.
Let’s take a closer look at what we can expect from each.
Workday
In its fiscal-Q3 earnings call in late November, CEO Carl Eschenbach said the company was raising subscription-revenue guidance for the fiscal year ending Jan. 31, 2024, to $6.6 billion, up 19%. (For more details, please see “Cloud Q3 Revival: Workday, Snowflake, Salesforce Say Demand Rising.”)
But the two related numbers from last quarter that really snatched my attention were these: In the category of “total subscription-revenue backlog,” Workday reported a 32% jump for fiscal Q2 ended July 31 and then 31%, to $18.45 billion, for fiscal Q3 ended Oct. 31. While that contracted business has not yet been recognized as revenue, those big consecutive jumps of 32% and 31% show that customers are making major commitments to Workday’s Financials and ERP suites of applications along with its extensive Planning solutions and other services.
Propelled by what I call The Eschenbach Effect, I think Workday will definitely post subscription-revenue growth of at least 19% next week, and I give them a pretty good chance of cranking that up to 20%.
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Salesforce
Okay, I suggest you strap on your Double-Talk Detection Goggles before you read this next section because when Salesforce posted its fiscal-Q3 numbers three months ago and Marc Benioff was asked about what Q4 might bring, he took every position possible but ultimately guided to 11% growth.
Here’s an excerpt from my Dec. 7 analysis titled “Cloud Q3 Revival: Workday, Snowflake, Salesforce Say Demand Rising” explaining how Benioff swore he would not under any circumstances project optimism while simultaneously painting a pretty rosy picture for Q4 ended Jan. 31.
Analyst question: “Marc, really nice improvement in deals over $1 million, up 80% year over year. You’ve all alluded to this larger contract you landed. I’m just curious, do you feel like this is a new environment?”
Benioff response: “There was a lot of debate among the management team in putting together this call on how we were going to answer that question. We don’t want to give you, in any way, indications that we see this environment going behind us” (emphasis mine). “That said, we see a lot of green shoots. There’s just a lot of opportunities. Customers are excited about — and Japan is very much a metaphor for me. When I was there about one year ago, it was for them still the pandemic. When I had lunch with employees a year ago, everyone was wearing masks. So this was the first time when I felt like, okay, it’s kind of back to normal and the pandemic hangover has kind of been digested by the customers.”
Okey-dokey: So “we don’t want to give you, in any way, indications” that things are getting better, Benioff intones, but at the same time green shoots are shooting up everywhere, and “customers are excited,” and “there’s just lots of opportunities,” and “it’s kind of back to normal.” If you can decipher that rhetorical Gordian knot, please let me know.
I’m going to go out on a limb — or perhaps I’m going with what Benioff was telegraphing between the lines? — and predict that Salesforce’s long string of declining growth rates will end next week when Benioff reports revenue grew 12% for the quarter.
Snowflake
In my Dec. 19 analysis titled “Snowflake CEO Slootman Sees ‘Broadly Stabilizing Macro Environment,” Frank Slootman offers a number of reasons why he believes Snowflake should report continued strong growth for its Q4 following Q3’s product revenue of $699 million, up 34%.
“We’re already seeing that the interest in AI is also driving interest in the data strategy, which then has a knock-on effect on consumption. It’s also the expansion of the data universe that people are bringing in the quality of the data initiatives. All of that is going to bring incremental workload utilization to Snowflake even though you would normally not necessarily characterize that as AI,” Slootman said.
“And it might well be that a ton of these workloads is actually the proverbial iceberg and only the tip of it that’s sticking above the water is really AI. But everything that has to happen to support us is happening below the surface, and then we’re going to be a huge beneficiary of that (emphasis mine).
Later in that Q3 earnings call in late November, Slootman added this telling perspective about more of its revenue coming from big corporations rather than data-intensive digital startups:
“While Snowflake’s global revenue mix is highly diverse in terms of industries and geographies, the company is deriving an ever-larger revenue share from mainstream enterprises and institutions, as compared to a newer crowd of digital natives that have made up many of Snowflake’s early adopters,” he said.
“Generative AI is at the forefront of customer conversations, which in turn drives renewed emphasis on data strategy in preparation of these new technologies. We’ve said it many times: there’s no AI strategy without a data strategy. The intelligence we’re all aiming for resides in the data — hence the quality of that underpinning is critical.”
Slootman also added a compelling detail about the surging consumption of unstructured data among Snowflake customers, saying it was up 17X year over year, with almost one-third of Snowflake customers processing unstructured data. And that trend, he said, will only accelerate.
In light of those insights about customers plus Snowflake’s consistently heady growth numbers, I’m predicting that next week it will report product-revenue growth of 35%, up from fiscal-Q3’s 34%.
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