Not too long ago, the cloud was supposed to be
the most resilient part of the tech sector. Digital advertising was fading,
e-commerce was slowing, and demand for consumer electronics was down. But
businesses would continue to spend in the cloud because it was cheaper and more
efficient than traditional software and on-premise computing equipment.
But that story hasn't quite played out. Early
this earnings season, we learned that cloud growth at the tech giants was
slowing considerably. Now we know it's impacting the pure-play cloud companies
too. And no one is more pure play than Salesforce, a pioneering
player in cloud software that remade the way companies manage their sales
relationships.
Last night, the company forecast
lower-than-expected revenue for its current quarter ending January. Salesforece
also said that its co-CEO Bret Taylor was stepping down. "After a lot of
reflection, I've decided to return to my entrepreneurial roots," Taylor
said in a statement.
At one point in time, Salesforce itself
embodied entrepreneurial roots, having been founded by Marc
Benioff, who left Oracle to start a more cloud-focused company
in 1999. Today, Salesforce has quarterly revenue of nearly $8 billion. It's no
longer a start-up -- and it's not immune to issues in the global economy.
"I'm seeing a lot of buying behavior that
really reflects a lot of what we've seen during other crises, whether it's '08,
'09 or even '01," Benioff told investors on the earnings call last
night.
"Starting in July of this year, the
buying environment became more measured and foreign exchange headwinds were
becoming increasingly complex," he added. "And we're not assuming
that this economy gets any better anytime soon."
The company now forecasts revenue growth of 8%
to 10% in its January quarter. During the same quarter a year ago, sales grew
26%. The slowdown is here.
Salesforce shares fell 8.3% today, making it
the worst performer in the S&P 500.
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