Salesforce stock struggles, along with its sales team

Last week, Salesforce Inc. experienced its largest share price drop in nearly two decades, primarily due to projections of the slowest quarterly sales growth in the company’s history. This alarming trend has reignited concerns that Salesforce, the CRM giant, might be losing its edge.

The company announced that revenue for the quarter ending in July is expected to increase by only 8% to $9.25 billion. This marks Salesforce’s first quarter of single-digit sales growth since it went public nearly 20 years ago. Following this announcement, Salesforce’s stock plummeted by 20% to $218.01, the steepest single-day decline since July 2004. The stock closed yesterday at $234.86.

Analysts had anticipated revenue to hit $9.35 billion, according to Bloomberg data. Salesforce’s projected profit is about $2.35 per share, also falling short of expectations. This outlook has intensified investor concerns over the company’s declining sales growth over the past year, despite its shift in focus towards enhancing profitability.

Salesforce’s management has been promoting the potential of AI software and features to drive future revenue growth. However, this optimism has yet to reflect in the financials. To appease Wall Street, the company has also ramped up stock buybacks and initiated a dividend. Despite these efforts, Salesforce’s stock had only seen a modest 3.2% increase this year before the latest drop.

The broader software sector also felt the impact of Salesforce’s outlook, with shares of companies like Oracle Corp., ServiceNow Inc., and SAP SE declining. In contrast, Inc. saw a rally due to a stronger-than-expected sales forecast. The disparity highlights the current trend where the AI frenzy has predominantly boosted hardware and chip companies such as Nvidia Corp. and Dell Technologies Inc.

CEO Marc Benioff remains optimistic about the company’s future. He emphasized the long-term potential of AI and the company’s strategic position to help businesses harness AI’s benefits over the next decade. However, most analysts do not expect Salesforce’s generative AI features to significantly boost revenue until at least 2025 or 2026.

After last week’s earnings call, Ryan Walsh, CEO of RepVue, was quick to point out that Salesforce’s sales team has been struggling. The headcount on the sales team has remained mostly flat over the last three years, while the percentage of Account Executives hitting quota has dropped from the mid-high 40s to the high 30s in that same period.

While much of the conversation was around Salesforce’s slow adoption and rollout of trendy AI services, Walsh believes the woes of Salesforce’s sales force (see what we did there) is a driving factor behind the company missing its growth projections. If Salesforce wants to get back on track to double-digit quarterly growth, their sales team will need to get back to the mid-40s in terms of percentage of quota attainment across the company. And, hopefully, Salesforce’s quarterly “miss” does not foretell a slowdown in the broader market/economy.

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