Against a challenging macroeconomic and geopolitical backdrop the caution is arguably understandable. It remains unknown, however, how these looming clouds will effect business software spending: both vendors and their VC and other financial backers are keenly attuned to every indicator as a result.
(Several have approached The Stack for audience polling and analysis).
A Salesforce profit forecast this week is one public indicator that gives some cause for optimism.
The company raised its annual profit forecast late Tuesday May 31, suggesting that demand for business software is holding up in the face of macroeconomic instability: “So far, we’re just not seeing any material impact from the broader economic world,” Chairman and co-CEO Marc Benioff said on an earnings call.
Salesforce profit forecast hike: Digital transformation continuing
“Our demand environment remains very strong” he added, as Salesforce reported quarterly revenues of $7.41 billion, up 24% year-on-year. Cash generated from operations meanwhile was $3.68 billion, up 14%.
Earnings will be $4.74 to $4.76 a share, up 12 cents a share from the company’s previous forecast.
Annual revenue will be as high as $31.8 billion, Salesforce projected.
Salesforce’s Chief Revenue Officer Gavin Patterson added: “Even in this volatile environment, companies are continuing to invest in their digital transformations, and we’re seeing that in our strong pipeline and momentum in the business. I’ve been on the road this quarter across the US, Europe, Asia… in all my conversations, there is a real sense of urgency with our customers. In this new or digital work-from-anywhere world, our customers need to create incredible customer experiences across every interaction to stay competitive. And at the same time, they need to realize productivity gains, efficiencies and resilience from their technology investments.”
In a recent thread, prominent private equity (PE) investor Orlando Bravo, co-founder of Thoma Bravo — a PE firm with over $100 billion in assets under management and investments in over 60 software companies — added that although he saw excessive valuations as coming back to earth, the broader market was not a worry.
He said: “The way you operate and manage a software business is the same (whether you are in 2000, 2019 or now). What difficult environments do is make execs more attentive to forecasting and their P&L (which is always a good thing). The environment for software/tech today is nothing like 2000. Back then, you had all these startups selling to one another. Once the music stopped, they all lost each other (their customers). Second, you had the Y2K buying binge, creating one-time demand for software before 2000. Today, digital transformation is well underway, and software and tech solutions are being sold to all industries & types of enterprises… we have not had a “one-time” wave of demand. Instead, demand has been driven by the acceleration of digital transformation.”
And not everyone on the vendor side is nervous. Andy Byrne, CEO of Clari, a revenue operations software platform that recently raised $225 million told The Stack: “We’re accelerating hiring on every single department.
“We feel like in these the pending recessionary times, it’s gonna be beautiful for us. I look at some of my CEO peers that did not raise capital. They’re going to probably have a very challenging financial situation over the next 18 months. We have five or six years worth of runway so we are investing in all departments and building our M&A muscles. We were six people, pre-COVID. Now we’re almost 40 people and growing fast.”