Are we getting the full story from Salesforce’s May 31 2023 Earnings call?

Reaction and Commentary about Salesforce’s (ticker: CRM) May 31, 2023 Earnings Call – what’s going on here?

Video version of this Article/Commentary

Audio version of this Article/Commentary

You can go to our YouTube Channel to view the video version of this commentary

You can listen to this segment on our Spotify podcast channel HERE.

This Commentary is for entertainment purposes only – the author holds a Long position in the stock at the time of this commentary. This is not investment advice.

The below text is a transcript (may not be word for word in all places) of this video.

It’d be difficult to discount Salesforce as a market leader. This, especially as the biggest beneficiaries and biggest drivers of A.I. will be companies EXACTLY like Salesforce (ticker: CRM), and others like perennial heavyweights Microsoft, SAP, Oracle, etc. but in the earnings call, and outlook webinar after earnings announcements, there was a lot of interesting commentary and data to digest. I will focus on the commentary. 

I decided to prepare a video that showcases the webinar along with the “real-time” ticker view of the after hours chart of CRM. Of course, because this is not a high tech video by nature, I simply used a screen recording of the company’s call, and the slightly delayed google finance chart, to illustrate the point. 

The reason Salesforce was chosen for this analysis – which admittedly is not a deep dive, is not investment advice, and should not be looked to for anything other than entertainment – is because it is a perceived direct driver and direct beneficiary of widespread A.I. Adoption. It is also a Wall Street Darling; a strong performer in the market historically and YTD; and Salesforce’s portfolio, divisions and future growth potential seems hard to match, and may only be matched by other powerhouses like the above-mentioned diversified tech companies.

It’s important to note that CRM as a stock play is more than just as a CRM and software play. Assets like Slack and Tableau push their original market offerings from a simple software and CRM play, into a more diversified tech play. Even more specifically, their investments in cybersecurity plays and other A.I. and tech-adjacent market segments makes them certainly positioned as a growth story for at least a decade into the future, while looking like a decent play for cash flow, when layered onto the backdrop of pure growth tech stocks. 

Simple looks at things like their investment in companies like Wiz.io makes it hard to discount Salesforce as a market leader in innovation, at least from an investment and research perspective.

This is important as you look at the practical day-to-day adoption of the growth strategy of companies big enough to move the markets, but also nimble enough to redefine what they are as a corporation in an ever changing world.

So here are some of the commentary that came to mind while I was listening in on the CRM earnings call:

Did Marc Benoiff lean too far into A.I.?

Was his commentary based on the jump in stock prices that we saw with the chipmakers that leaned into A.I. commentary earlier in the month, namely Nvidia, and others?

It felt very much like a “name-dropping” session, and highly reliant on the prop-up effect of utilizing an A.I. focused agenda. 

I actually feel like there was a correlation with the after hours movement and the seemingly too-focused commentary. 

Words like GPT, LLM, Cloud, and A.I. were mentioned far too often for my tastes. Not because I’m not excited about the potential from the A.I. perspective, but rather because I feel like it may have been a bit too convenient to be able to answer everything with “forward thinking” answers, than to rely on actual value produced by the A.I. backbone the company is ACTUALLY built upon. 

It seems slightly disingenuous to talk about “transforming every part of the business” as Marc alluded to, when there is still so much unrealized value and such an important core revenue foundation on their existing and well-regarded product and services mix. 

The important part here is not that Salesforce is well entrenched in A.I. and stands to benefit the market, and benefit as a company from A.I. Instead, it seems like they might have been pushing an agenda from a marketing perspective instead of from a practical perspective. Which, of course is one of the things that can, by prerogative, do, in their earnings call.  

Mentions of things like: (paraphrase) “CEO’s all over the world are talking to us about A.I. …”

Shouldn’t the CEO’s you work with be asking about A.I.? Shouldn’t they utilize your experience and knowledge of A.I. to make decisions? Shouldn’t the locked-in folks who already entrust you to their data and their architecture be in constant communication with you about A.I.? 

I seem to be missing something about the material value of such a statement. 

Questions were good from reporters and analysts, and it was particularly important for me to listen to the difference in vocal inflection from the question asker, and the question answerer regarding slowing of growth. The fundamentals of the stock in all reality have to be the core focal point. But there was seemingly a concerted effort to avoid talking in-depth about the slowing growth, and the potential for reduction in budgets by end users. 

Jokes about the pandemic being a problem seemed to be a tactic more than anything, to try to defray concerns about the changes in potential spend from a customer perspective.it’s obvious that the pandemic was an unpredictable situation. But to use it as a blanket answer to why they wouldn’t address changes to cap-ex and services budgets, doesn’t make sense. 

A 5%+ decline after hours specifically as company spokespeople and figureheads dodged questions about the future earnings growth seemed to align directly with the disconnected nature of the way that questions were being answered. It was almost TOO surface level for even an earnings call. At around 2:40p PST/5:40p EST, there was an even more pronounced drop as discussion continued to migrate towards unproven speculative growth channels, and had a distinct lack of transparency and depth about core, fundamental company pillars. 

Again, that’s not to say that there isn’t value in being bullish on A.I. and on changing the overall capabilities of the company as it relates to the current market environment and the A.I. inclusion. But as a major benefactor and contributor to the A.I. concept from a markets perspective, with all their important customers and important value as a company that drives commerce and interfaces with large datasets of premium proprietary value – it sure seemed like Salesforce’s commentary was lackluster at best. It’s not fair to pin a 1:1 correlation to the after hours drop, as many factors, like profit taking, sentiment changes, market conditions, and other things factor as well. But, it certainly seemed very correlated, as the price changed, it seemed to be directly in line with the depth of the information shared by Salesforce. 

That is: as they dove deeper into the specifics, the stock price moved positively. As they skirted on the details, the stock price moved negatively. 

Marc seemed to be all about the perception of what was possible, more than being aligned with the actual use cases and current capabilities of the company from an A.I. perspective. Which seems insane to me, as this is one of the best pure plays in the A.I. channel, a company that already has value and can already benefit from a revenue perspective on the A.I. platform.  

For a company with such a rich (forward) P/E (it’s not lost on me that P/E is not what it used to be as far as evaluating tech stocks), it sure seems ridiculous to be talking in flowery language about what could be, rather than what is happening under the hood in real time. It felt very “crypto” to me as I listened. And the sentiment seemed to play out as the stock price, after hours, ticked lower. 

Nvidia, as a contrast, delivered ridiculous outperformance as a result of direct correlation to the A.I. exposure it has. Of course, that is an apples to oranges comparison as they are not competitive – product wise – and there are adoption cycles that differ between the company’s core offerings that don’t correlate. But as a landscape for context, delivering low double digit growth on the backdrop of rich multiples in P/E versus other important A.I. market contributors (namely Nvidia), it surely seems that Salesforce is later to the party from a revenue perspective. 

Some lag is acceptable, but that lag in earnings or revenue realization is maybe less palatable when you’re talking about what is possible, but showing an entire quarter, where there is little to no growth from implementation of actual A.I. 

All that said – I am exceptionally bullish on Salesforce. For a thousand reasons. But there is a lot of disappointment in my mind about what was laid out from a roadmap and vision perspective during this call. 

My bullishness on the stock is not derailed in any way from a broad perspective, but I do feel that the implementation of this earnings call was a bit hasty, and lacked a lot of transparency, and felt very surface level. 

Again – I state: I believe Salesforce is already a leader in Artificial Intelligence. Why, then, are we hearing ridiculous, non-core commentary about things that are not material to the actual earnings of the company for the prior quarter. 

IF, and this is a big IF, these quarterly earnings were positively impacted by A.I. work internally within Salesforce, then it’s lackluster performance at best. I certainly hope they aren’t playing that card. The growth rate was abysmal if that’s the case, and may, in fact, help shape a less bullish view personally, of the company in the long-term. 

Slack is important. Tableau is important. It’s important for more than just the largest enterprise customers. In fact, these tools are so important to the way we do business, especially on the SMB level, that it should be a major growth factor for Salesforce. It seemed to be an afterthought, with vague stylings of the future of A.I. from internal roadmap projections. 

Yes Slack and Tableau were mentioned, and that’s important, but there was a lot of flowery talk about what was going to be, but it felt very “TRUST US!” in delivery. 

And that’s what is so scary in this earnings call, and why, I believe the execution of this call was botched. It was not indicative of the value that Salesforce brings to the portfolio from a brain-trust, and as an existing customer database, perspective. We don’t rely on Salesforce to be Prophets – we rely on them to deliver real-time solutions to real-world business problems.

The call was short but not sweet in my opinion, and having made a larger investment in the company just minutes before the closing bell it seemed annoying at best for the stock to be negatively impacted by such a poorly orchestrated earnings call. I say this as someone who normally champions this team as a leader in the ability to talk about reality in the space they operate in. And I am someone who is bullish on the company as a whole, ESPECIALLY on the backdrop of the A.I. growth story. 

In fact I hope that the stock rebounds significantly as the figureheads have finally closed out the call. People can realize that even though the statements made seem wholly disconnected from the reality the company has built as a maverick and an exceptional solutions provider over the past several years. 

The overall sentiment from me, is that while I am still bullish on the stock, the earnings call was a lot of fluff, not a ton of iterative and actionable data, and downplayed the core strengths of the company when it could have been much more effective by showing how well Salesforce has actually integrated A.I. into their market offerings, and is heavily investing their money into A.I. centric, and A.I. adjacent plays going forward. 

A lot of money was left on the table during the call that maybe didn’t need to be. From the perspective of being over priced relative to the real-time multiples that CRM trades at, it seems that Salesforce management missed a prime opportunity to properly inflate market capitalization, in favor of hitting talking points from marketing staff. 

I hope that these: “Trust us!” statements have a bit more oomph behind them, and that we see some of the real positive impacts that are very likely to exist in the short term future for Salesforce, but I grade this earnings call a poor showing, that offered very little insights into the future impact A.I. will have on actual revenue and actual earnings. 

I also want to point out that this commentary by me is meant to serve as a stream of consciousness opinion, not a deep dive on the value of the stock, nor as an indicator of my position on the stock or on the capabilities of the team; or the future value of the company. 

I guess I just want a little less OHANA, and a little more practicality in my earnings calls.