For the fiscal year just beginning, Salesforce forecast increasing profit margins and revenue that would exceed analyst forecasts.
“Improving profitability is our number one priority,” co-founder and Chief Executive Marc Benioff said during a call with analysts.
Mr Benioff said the company is cutting headcount, cutting property costs and tightening controls on spending. He said Salesforce, which has long used M&A as a way to grow, would dissolve its M&A committee to reflect the company’s new focus on efficiency.
“Our transformation is happening now,” he said, adding that the company is accelerating what had been a two-year transformation plan.
For the fiscal year that began February 1, Salesforce expects adjusted operating margins of approximately 27%, up from 22.5% in the recently completed year.
Last year, Salesforce executives presented analysts with a plan that would increase adjusted operating margins to 25% by 2026. Before 2022, the company’s margin was always less than 20%.
Salesforce shares rose 15% in after-hours trading. Before the earnings announcement, the stock was down about 21% over the past 12 months, while the tech-heavy Nasdaq Composite Index was down about 16%.
The company said revenue increased 14% to $8.38 billion in the three months through January, better than expected. Salesforce’s loss widened from $28 million in the same quarter last year to $98 million.
Salesforce is experiencing a sales slowdown. Revenue growth has averaged around 25% for years, but is slowing as companies delay orders and demand less from its services.
The company forecast revenue for the current quarter to be in the range of $8.16 billion to $8.18 billion, up about 10% from the year-ago quarter. Wall Street had estimated $8.01 billion.
Billings, a measure that measures business transactions during the quarter and serves as a leading indicator of revenue trends, rose 13% to $14.68 billion in the fiscal fourth quarter. Analysts had expected $13.74 billion.
Analysts expect billing growth to remain near the single-digit range for the next two quarters, according to FactSet. That could be one of the slowest trajectories in the company’s history.
Photos: Technology sector layoffs across the industry: Amazon, Salesforce and more layoffs
Salesforce, which makes software for sales professionals, has been around long enough to have gone through some tough economic times in the past. Salesforce billing growth hit a low of about 10% in early 2009 during the global financial crisis.
Salesforce is under pressure from investors to increase its earnings amid a revenue slowdown. At least five activist investors, including Elliott Management Corp. and Starboard Value LP, have taken stakes in the company and are lobbying management for change.
Earlier this year, Salesforce named three new directors to its board, including Mason Morfit, the CEO of ValueAct Capital, one of the activists who took a stake in the company. Mr. Benioff credited Mr. Morfit for driving the company to pursue more aggressive margin targets than last year.
“He was able to point out levers that we didn’t understand. As soon as we saw it. we did it,” said Mr. Benioff in an interview following Salesforce’s analyst call.
The Wall Street Journal reported in January that Elliott was preparing to nominate its own list of directors. Last month, the activist investor privately nominated a slate, according to experts in the matter. Elliott isn’t necessarily aiming for a proxy fight with Salesforce, the people said, and instead hopes the pressure from the nominations can help the company’s bottom line.
Elliott praised Salesforce’s plans in a statement Wednesday, saying the company needs to deliver what it outlined and move forward.
“Salesforce needs a sustainable leadership plan and a board that demonstrates accountability through proper oversight,” said Elliott. “Elliott plans to continue working with Salesforce as we evaluate the level of commitment needed to achieve the best outcome for the company.”
The company has also faced a revolving door of high-level executives, including the loss of a second co-CEO in as many years.
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In January, Salesforce announced the largest-ever layoffs of 8,000 employees, or 10% of the total workforce. The company has halted non-essential travel for many employees who don’t work directly with customers. It also scaled back some of its real estate leases.
In an interview last week, Salesforce president Brian Millham said the company is trying to be more efficient with a smaller sales force. The strategy is to reduce the number of sales teams per account, trim down support staff, and push more customers to self-service options.
“You have to have those things if you want to run the business in a more profitable way,” said Mr Millham.
For the current fiscal year, Salesforce expects revenue to grow approximately 10% to between $34.5 billion and $34.7 billion. Analysts expected sales of $33.89 billion.
—Lauren Thomas contributed to this article.
Write to Tom Dotan at tom.dotan@wsj.com
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