While Salesforce’s Q3 numbers revealed some uplifting results and possibilities, the overall picture shows a company in disarray that has suddenly fallen out of phase with a vast market it has helped to power for the past two decades.
I don’t mean to be glib, but perhaps we’ll start with the “good” because it won’t take long.
1) The Good: Industry Clouds and Slack
For the quarter ended Oct. 31:
- Slack revenue was up 46%;
- industry solutions “continue to be a strong tailwind to our revenue growth,” CFO Amy Weaver said, while declining to offer a specific number; and
- Mulesoft rebounded nicely with revenue up 19%.
2) The Bad: Failing To Live Up to Salesforce’s Own Standards
Just as Marc Benioff has been known to skewer competitors when their results fail to live up to what he feels cloud leaders should achieve, so too must Benioff and the company hold themselves to that same standard. And while some of the numbers below might possibly be classified more as “okay” than “bad,” bear in mind as you see these numbers that Salesforce has established its own standards over the past several years for quarterly revenue growth of at least 20% and much more frequently 25% or 27% or even as high as 35%. To see this in detail, please check out my chart showing Salesforce’s quarterly growth rates and revenue for the past 20 quarters — it’s an extraordinary record of past success. In that context, does 12% growth for its three major clouds inspire confidence or concern?
- Sales Cloud: Q3 revenue for the company’s flagship product was up 12%
- Service Cloud: up 12%
- Marketing and Commerce: up 12%
- Data: up 13%
3) The Ugly: Tableau Crashes and 2 Top Execs Say Farewell
Just a couple of years ago, Benioff referred to his acquisition of Tableau as “the best acquisition ever done in the history of the software industry, and certainly the most successful.” Yet in Q3, Tableau revenue grew just 8%, a performance that, had it been delivered by a competitor, Benioff would likely have lampooned as woefully inadequate and clearly indicative of Salesforce’s superiority.
But, there it is: Tableau revenue grew just 8% for the quarter, leading me to ask a few days ago, “How is it possible in world obsessed with data that Tableau’s growth rate would crash to 8%?” For that and four other big questions Salesforce must confront, please see “As Salesforce Growth Rate Plunges to 5-Year Low, 5 Big Questions Arise.”
But that troubling Tableau aberration pales in comparison to the high-profile departures of Salesforce co-CEO Bret Taylor and Slack founder and CEO Stewart Butterfield.
- Was it just bad karma that both decided simultaneously that it’s time to bail?
- If you believe in coincidences — and I don’t — you might be willing to brush this off as just one more piece of evidence that we live in a capricious universe. But I think that’s a lame excuse in trying to explain Taylor and Butterfield bailing out within a couple of days of each other.
- Butterfield’s the head of the Salesforce unit that’s one of the company’s few bright spots with its growth rate of 46% — and he’s gone. Was this a surprise to Benioff? Could he not convince— or beg — Butterfield to stay just one more quarter to spread out the misery a bit between the departures of Taylor and Butterfield?
- And if Butterfield’s departure was not a surprise, and Benioff and Taylor were aware it was coming, then couldn’t Taylor have waited a couple of quarters before resigning from his high-profile co-CEO role, a departure that does not make Benioff look good no matter how he and the company try to spin it? Look what Taylor said about his supreme regard for Benioff and Salesforce on the Nov. 30 earnings call: “And as Marc said, I will remain as co-CEO through the end of the fiscal year, not only to ensure a smooth transition, but most importantly, to ensure that we have a strong close to the quarter and a strong close to the fiscal year. And as Marc said, even after this transition, I will always, always be a part of this company and always be a part of this community.” Sorry, but while human beings often want to have it both ways, that’s not how the world works. If Taylor truly believes that, as he said, “I will always, always be a part of this company,” then why not stick it out for another six months before heading back to his entrepreneurial roots?
4) The Outlook: Salesforce as the Hunted, Rather Than the Hunter
Perhaps business customers will look at all this and say, “Hey, no biggie — we’re not going to look at any of Salesforce’s competitors because Salesforce has been the runaway leader for a decade.” But one thing the past couple of years have taught us all in this crazy market is that unless a company can extend or increase its past success, it will by default lose ground and fall behind.
No doubt Salesforce’s competitors will take full advantage of this Q3 crackup and, as a result, will perhaps gain some opportunities among customers that would not have otherwise arisen.
So can Marc Benioff — once more alone at the helm of Salesforce — demonstrate that past success can indeed be a reliable indicator of future performance?
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