Salesforce shares climb as CEO says company 'hired too many people'

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Salesforce (NYSE:CRM) shares rose more than 3% Wednesday as company Chief Executive Marc Benioff said the cloud-based business-software company has "hired too many people" and would cut 10% of its workforce,

Benioff made the announcement in a filing with the U.S. Securities and Exchange Commission prior to the start of trading. Like many companies, Salesforce (CRM) got a boost in sales for the better part of two years as businesses allowed millions of employees to work from home due to the COVID-19 pandemic. In a letter to Salesforce (CRM) employees, Benioff said that the company ramped up its hiring "as our revenue accelerated through the pandemic," but that the "economic downturn we're now facing" has led Salesforce (CRM) to its current job-cut situation.

"I take responsibility for that," Benioff said, regarding Salesforce's (CRM) excessive wave of hiring.

Based on recent Salesforce (CRM) data, the job cuts will amount to about 7,350 employees.

Salesforce (CRM) made the announcement in the wake of what was by all accounts a tough year for the company's stock, and its investors. Salesforce shares fell 44% in 2022, and touched a 52-week-low of $126.34 on December 22.

In his letter, Benioff praised Salesforce's (CRM) employees and their "incredible resilience" as "the [current] environment remains challenging. Benioff said affected employees in the U.S. would receive five months of pay, health insurance, career resources, and other benefits.

Wedbush analyst Dan Ives called Salesforce's (CRM) job cuts "a smart poker move" to try to preserve its profit margins during "an uncertain [economic] backdrop."

Ives said he believes the job cuts "are tied to preparing the company to navigate the softer demand environment" while also seeing longer sales cycles "and a higher level of uncertainty in the field impacting its overall billings growth."

Ives maintained his outperform rating on Salesforce (CRM) and said that the company's shares are "compelling at current valuations for investors willing to hold this core cloud stalwart stock."

In addition to its job cuts, Salesforce (CRM) spent 2022 dealing with the departures of several top executives, including co-CEO Bret Taylor, who is leaving the company at the end of January.

Comments

[cyrusace]

No doubt Salesforce is a good software company but it was way overvalued at the top and frankly should never have gone above $100.

Since inception Salesforce has generated less than $10 billion in GAAP income. In fact for most of it’s life it had zero GAAP profits. Meanwhile the share count has EXPLODED from half a billion shares 10 years ago to almost 1 billion shares outstanding today.

There are many reason major top tier executive quit companies but one of them is NOT that the company is experiencing amazing growth and they expect the stock price to head higher.

Would not go NEAR this stock at these nose bleed valuations above $100. 🤷🏽‍♂️

[Matej Pejič]

@cyrusace you have no idea what you are talking about. They have generated more than 10b in profits from their venture investments alone. They invested in Databricks, DocuSign, monday.com, nCino, Snowflake, Snyk, Stripe and Zoom for example. They also generate a lot of FCF, the only knock I have for them is SBC. If they take care of that and start doing more buybacks with their FCF, share price will explode.

[colorado buff]

@Matej Pejič sbc is obscene. Need to reign that in

[cyrusace]

@Matej Pejič
CRM had no GAAP profits till 2017.
GAAP profit by year:
2017 = $ 323 mil
2018 = $ 360 mil
2019 = $ 1,110 mil
2020 = $ 126 mil
2021 = $ 4,072 mil
2022 = $ 1,444 mil

And so YES the market is valuing CRM, a great software company that has made less than $10 billion in a DECADE, at $135 billion.
The people buying CRM are buying it on a 20 times or so free cash flow valuation and they think that the cash flow continues to grow because they view CRM as recession proof. But senior management resignation and the job cuts are telling shareholders something REALTY important = those cash flow are at risk. Ask yourself, in what universe does management take these type of action with expanding cash flows.

Just the facts.

[Mission Hills 01]

Honestly needed, such a bloated organization. Great company and product though and I trust Marc

[colorado buff]

@Mission Hills 01 and address sbc

[alexanderlambert]

Fired employees receiving benefits and pay for 5 months after their layoffs won't start to affect the profits of Salesforce until Q3. Meanwhile consumer demand is collapsing, as evidenced by the negative economic data globally since the summer of 2022. Firing 10% with these benefits is a nothing burger for the company's profits and leaves them with too many workers still. This will set them up for more painful layoffs (and lengthy benefits packages) as the year progresses.

[colorado buff]

@alexanderlambert 10% is significant. Another 10% may be needed, but it’s a great start.

[Manzanita Research]

The days of tech bros resting and vesting on the rooftop deck with catered lunches is drawing to a close. It was fun while it lasted.

[Mission Hills 01]

@Manzanita Research nah, they’ll be back.

[Matt_93]

There is a lot of fat for many of the tech/cloud companies to cut. During the anything-goes phase of the previous decade, you could spend and hire as much as you want. Employees didn't need to generate revenue, and you could just hire them to drink free cappuccinos and post to social media. This is the silver lining of capitalism. Eventually you have to pay the piper and the market will show you, once the external meddling is over.

[colorado buff]

This was obvious and a good move