Partly Cloudy Forecast for Salesforce and Tech Stocks in Wild Week
There was a lot of activity this week in tech stocks, starting with positive earnings from Intuit, who is more of a SaaS company every quarter. Then on Wednesday Salesforce and Snowflake each had earnings announcements with opposite effects. Snowflake pleasantly surprised analysts by not losing money as quickly and boosting sales unexpectedly. Also on Wednesday Salesforce, who is perhaps the best indicator of global enterprise software buying activity, said their pipeline didn’t look so rosy anymore. So, Salesforce cut projected growth and sales volume by roughly 15%.
All that news whacked Salesforce stock yesterday and sent Snowflake soaring. Then today, during a speech at an annual meeting of the United States Federal Reserve, Chairman Jerome Powell firmly stated the Fed will continue to raise interest rates. The Fed will continue this policy until there is a material change in the rate of inflation or the labor markets. This news has impacted tech stocks today, helping Salesforce to lead the laggards in the Dow Industrial Index.
Salesforce and SaaS Ecosystem Impact from the Fed
If you are an enterprise IT worker, an employee of a Salesforce ecosystem company, or part of an executive team in the ecosystem, I’m sure you are wondering what these changes mean for you.
First let’s consider the size of enterprise IT today. SaaS software and public cloud expenditures are big business now. There is likely to be $425 billion spent on SaaS and the cloud in 2022.
An industry that large is likely to feel the macro impacts of higher interest rates in the United States. Not only will this monetary policy slow growth in certain industries, which will in turn slow their IT spending, but higher interest rates will attract more investors to the United States. This has the potential to further strengthen the dollar. A stronger dollar will have a further weakening impact on tech earnings, especially for public companies with global reach.
So, it would be a mistake to ignore the Fed’s monetary policy, even in the face of all the positive factors currently weighing in favor of SaaS and the public cloud providers.
2nd Half 2022 Outlook: Partly Cloud for SaaS
I must preface any forecast by saying that we are at a unique point in world and business history. So, it is impossible for anyone to accurately know what is going to happen in the second half of 2022. I liked Marc Benioff’s comment on the analyst call. He said everyone to which he has spoken has a different perspective and outlook on the economy. So, there is a ton of uncertainty about both positive and negative outcomes.
But we do have the information coming out of Salesforce, who has an extensive sales intelligence network.
So, taking the revised sales guidance from Salesforce literally, cloud and SaaS companies should start planning for at least 15% sales hit over the next year.
Salesforce and SaaS Good for Long Term Growth
As a final reminder, my long-term outlook for the Salesforce ecosystem and other SaaS communities remains strong. The primary reason is the perceived necessity to fully digitize the enterprise, otherwise known as executing a digital transformation program.
And we are far past the tipping point of the cloud and SaaS being the future of enterprise computing. Due to developer shortages, enterprises must increasingly turn to low code solutions like Salesforce to complete transformation projects.
Bottom line, SaaS companies like Salesforce can continue with strong growth throughout the 2020’s. This is because enterprises, especially when starting or reorganizing, will increasingly turn to low code solutions from the cloud to increase efficiency.