- Salesforce increased prices for its key products for the first time in 7 years
- The move is focused on higher operating margins and profitability
- An outperformance in cRPO and margins in upcoming earnings could fuel a rally in CRM stock
Salesforce (NYSE:CRM) shares surged almost 4% on Tuesday after the software company raised prices for its products for the first time in 7 years.
Salesforce announced on its website that it plans to raise prices by an average of 9% starting in August. The company’s popular products, including Sales Cloud, Service Cloud, Marketing Cloud, Industries, and Tableau, will see their prices change after Salesforce said it delivered 22 new products and invested over $20 billion in research and development since its last list price increase.
Salesforce Professional Edition will now cost $80 (up $5), Enterprise Edition is available for $165 (up $15), and the price for Unlimited Edition will sit at $330 (up $30). Products like Industries, Marketing Cloud Engagement and Account Engagement, CRM Analytics, and Tableau will experience smaller price increases, the company said.
Major Generative AI Player
Salesforce has also invested in generative AI as it recently introduced AI Cloud, Einstein GPT, Sales GPT and Service GPT, and some other AI-focused products. AI Cloud, for instance, was unveiled just last month.
The product offers a set of capabilities optimized for delivering real-time generative AI experiences across all applications and workflows. For example, Salesforce says that sales representatives will now be able to quickly auto-generate personalized emails.
“AI is reshaping our world and transforming business in ways we never imagined, and every company needs to become AI-first,” said Marc Benioff, Chair and CEO, Salesforce. “AI Cloud, built on the #1 CRM, is the fastest and easiest way for our customers to unleash the incredible power of AI, with trust at the center driven by our new Einstein GPT Trust Layer. AI Cloud will unlock incredible innovation, productivity, and efficiency for every company.”
At the core of AI Cloud lies the latest version of Einstein, which Salesforce says is the first world’s first generative AI for CRM. This AI tool now delivers over 1 trillion predictions per week. The new Einstein GPT comes with a higher degree of security as it prevents large-language models (LLMs) from accessing sensitive customer data. In addition to Einstein, the AI Cloud also embeds other AI-heavy products developed by Salesforce, including Data Cloud, Tableau, Flow, and MuleSoft.
The launch of AI Cloud comes after Salesforce conducted a survey on generative AI, which included over 4,000 workers. 61% of survey respondents said that they plan to use generative AI at work, with 68% believing that their customer relationships will improve with the use of this emerging technology.
On the other hand, the concerning part is that 73% of surveyed people said that generative AI also comes with new security risks with almost 60% of those who plan to use generative AI don’t know how to do so using trusted data sources.
“As companies embrace this technology, businesses need to ensure that there are ethical guidelines and guardrails in place for safe and secure development and use of generative AI,” said Paula Goldman, Chief Ethical and Humane Use Officer, Salesforce.
Ramping Up AI Investments = Skyrocketing Costs
The price hike announcement also highlights how expensive AI investments actually are. Microsoft (NASDAQ:MSFT) is reportedly making more job cuts after a big round of layoffs announced in January. The company has invested heavily in generative AI and its Open AI partnership while admitting that many customers are looking to achieve a lower cloud computing bill amid a tough macroeconomic environment.
Salesforce stock has failed to return to record highs despite other large-cap tech stocks powering their way to all-time highs after a difficult 2022 year. Investors would like to see a higher degree of focus on profitability and margins instead of expensive M&A deals. Salesforce spent $28 billion to acquire workplace chat app Slack back in 2021.
This is exactly what Salesforce is attempting to achieve. CEO Benioff said in March that profitability is truly our number one strategy” while operating margins are the company’s new “north star.”
“We’ve never had an efficiency focus at the company before because we’ve had 24 years of just grow, grow, grow . . . we’re looking at this moment to reassess,” Benioff said on the earnings call back in March.
Many believe that Benioff was forced to make a pivot towards profitability after several activist hedge funds, including Elliott Management, increased pressure on Salesforce by nominating new directors to the company’s board.
After the two sides held discussions over these nominations, they issued a joint statement saying that activist hedge funds would not proceed with director nominations. On the other hand, the Company will push forward with the previously-announced “New Day” multi-year profitable growth framework.
“I have great respect for Marc and his team, and I have become deeply impressed by their strong ongoing commitment to profitable growth, responsible capital return and an ambitious shareholder value creation plan,” Jesse Cohn, Managing Partner of Elliott, said.
Still, despite these commitments and a renewed focus on profitability, Salesforce shares fell on June 1 after the company offered a soft outlook for the current remaining performance obligation (cRPO), a closely-watched financial metric for Salesforce and other software companies. For the first quarter, cRPO increased 12% year-over-year to $24.1 billion.
The company sees cRPO growth at about 10% for this quarter, while revenue is expected to increase to $8.52 billion from $8.25 billion in the first quarter. On a full-year basis, CRM sees revenue at $34.6 billion, in line with the analyst consensus.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.