- Salesforce sees co-CEO Bret Taylor leave and faces slowing revenue growth.
- The combination has some investors spooked about the CRM giant’s future, especially for the fourth quarter.
- Here’s what worries them and what analysts think Salesforce should do.
With the sudden departure of co-CEO Bret Taylor and slowing growth, investors are worried about the future of Salesforce, the $147 billion CRM giant.
Salesforce stock is down as much as 10% today. While earnings beat analysts’ expectations, it also revealed the slowest revenue growth in two years, at 14%. It may not come as a surprise given the economic environment, but investors are concerned about Salesforce’s ability to meet its growth targets for the year.
Additionally, as Insider reported, Taylor’s departure from the company blindsided many employees and surprised many top leaders — including co-founder and now-exclusive CEO Marc Benioff. Taylor is set to leave at the end of January, at the end of Salesforce’s fiscal year.
Taylor was considered the likely successor to Benioff and the company’s next CEO, and his appointment as co-CEO seemed to cement that. His departure throws those succession plans into flux.
Taylor’s departure adds “more uncertainty at a time when stability is critical,” Bernstein analysts wrote in a note to clients. “It’s not a good mix and investors have to wonder if the wheels are falling off.”
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Find out who will lead Salesforce
With Taylor out as Benieoff’s successor, there are open questions about who Benioff will bring to the executive team now.
Two other executives are also leaving. Gavin Patterson, Salesforce’s chief strategy officer and previously chief revenue officer, is set to leave at the end of January. And on Thursday, Mark Nelson, CEO of Salesforce-owned Tableau, announced that he would also be leaving Salesforce. While experienced executives remain on Benioff’s leadership team, such as CFO Amy Weaver and COO Brian Millham, analysts believe Benioff needs to hire new leadership.
“You need leadership that is focused on the next chapter of Salesforce and the way things should be done, not necessarily the way things were done from the beginning,” said RBC analyst Rishi Jaluria. Now could be a good time to recruit talent from a smaller rival or startup, Jaluria said. Salesforce’s relative stability in an uncertain economic environment would be a major plus.
Consider the future of Slack
Taylor’s departure also raises questions about Slack, as Taylor spearheaded the $27.7 billion acquisition in 2020. He was also instrumental in Slack’s integration with the rest of Salesforce’s platform and the overall strategy and vision behind the acquisition.
Many analysts said they have questions about what happens to Slack and that product strategy after Taylor’s departure.
“We believe Bret’s vision was what drove the Slack acquisition and many of the recent product direction changes. Without Bret, we wonder if the focus might change,” the Bernstein analysts wrote.
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While not a huge shock given the overall economic environment, the slowdown in Salesforce’s revenue growth is concerning. First, Salesforce and other software vendors have always been viewed as recession-proof.
“The numbers at Salesforce don’t say a lot of great things,” RBC’s Jaluria said. “It shows that they’re certainly facing some macroeconomic headwinds and potentially some sales execution challenges. Especially if you look at their fourth-quarter guidance, it’s certainly weaker than people would expect.”
Second, as part of its broader platform strategy, Salesforce is looking to larger customers and looking for deals on multiple Salesforce products versus just one or two. But that’s harder to do when there’s more “intense customer scrutiny of every investment dollar,” RBC analysts said in a note to clients, citing what Salesforce management told analysts on a post-earnings call.
Salesforce’s numbers are also notable because other software vendors, such as Workday, don’t face these same challenges, Bernstein analysts note.
“Some of this is likely the economic slowdown/recession,” they wrote. “But we think that doesn’t tell the full story because we don’t see similar problems across software.”