Salesforce expects lowest quarterly growth in two decades

Salesforce has disappointed investors by posting revenue below expectation and forecasting sales for the next quarter at the lowest level of growth for more than two decades.

Despite this, the CRM giant said it would recover from the setback and would stick to its sales forecasts for the 2025 financial year.

For its Q1 ended April 30, Salesforce reported [PDF] revenue of $9.13 billion, up 11 percent on the same period last year. It posted net income of $1.5 billion for the quarter, up from $199 million in Q1 last year.

However, the company's first offence, at least according to investors, was to post revenue that fell short of the $9.18 billion expected by analysts. More seriously, the revenue for the next quarter, as forecast by the company, would be between $9.2 billion $9.25 billion, up around seven to eight percent compared to the previous year. Commentators were quick to point out this would be Salesforce's lowest quarterly growth since the SaaS company was founded in 1999.

As a result of missing expectation, Salesforce's share price fell more than 16 percent, cutting more tens of billions of dollars of the company’s market capitalization.

On an earnings call, Brian Millham, Salesforce's chief operating officer, said the company had seen "elongated deal cycles, deal compression, and high levels of budget scrutiny."

Analysts questioned why the company would not reduce its expectations for its full-year guidance, given the shortfall for Q1 and forecast for Q2. One asked "why that's not leaving risk on the table."

CFO Amy Weaver said the company was benefiting from pricing and packaging changes that it introduced in the past year. "We're seeing a very healthy adoption around our industries projects. When I step back and really take a holistic view of the full year, we do feel confident that we will be within our guided range," she said.

Megabuyte research analyst Nathan Jackson said: "Salesforce's soft outlook hasn't been received well by investors in after-hours trading, with the major concern being a downgrade to full-year subscription growth guidance on the back of tougher trading conditions in Q1 25, which management expects through the remainder of the year.

"Another point from these results is that its investment in generative AI is not yet providing as significant a growth lever as initially expected, especially compared to other enterprise software vendors like Microsoft and ServiceNow," he said.

Salesforce's struggles to get customers to sign up to SaaS deals is an echo of fellow enterprise software vendor Workday, which cut its forecasts earlier this month on the back of a higher level of "deal scrutiny."

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Since becoming a poster child for the introduction of the SaaS model, Salesforce has attracted a bit of scrutiny from activist investors too, in recent years, as growth and margins have come under the magnifying glass.

Elliott Management revealed it had acquired a stake in Salesforce in January 2023, with Third Point Capital, Mason Morfit's ValueAct, Jeff Ubben's Inclusive Capital soon following suit.

By March, however, the lead activist investor said it would not seek a place on the Salesforce board after the CRM company cut around 7,000 jobs and improved results. ®