Salesforce, Inc. (CRM) Earnings Call Transcript & Summary

Good afternoon, and welcome to Day 3 of the Morgan Stanley TMT Conference 2021 Virtual Edition. My name is Keith Weiss. I run the software research group here in the U.S. for Morgan Stanley. And very pleased to have with us this afternoon, Bret Taylor, Chief Operating Officer at Salesforce. Bret, thank you so much for joining us.

Thanks for having me, Keith.

Excellent. Before we get started, I do have to read a brief disclosure. For important research disclosures, please see the Morgan Stanley website at www.morganstanley.com/researchdisclosures. And also as a programming note, if you guys have any questions, there is a button you can press on the webcast. That's going to show up on my screen, and I'll try to weave your questions into the conversation with Bret.

So with that out of the way, again, thank you for joining us. It's definitely been an interesting year for Salesforce, an interesting year overall. So it's great to get the opportunity to talk to you. I thought a good place to start is we could do a little bit of the review of FY '21 that you guys reported last week and just closed up. Even with all the disruptions from COVID, you guys came in pretty much in line with sort of the original forecast we were looking for at the beginning of the year. My guess is probably a little bit different in terms of how that occurred in terms of the strengths and weaknesses. Can you talk us through perhaps a little bit, looking back at the past year, what worked really well for you, guys? What were some of the areas that got kind of pushed out a little bit, if you will, to help set the stage for entering FY '22?

Yes. It's a great point. I mean it was a roller coaster of a year. When we initially did our guidance for the year was prepandemic, and then the whole economy shifted and really saw a really different year than anyone was prepared for. And I think there's a couple of things that really stood out to me in our execution. As you said, we really came out, we originally had planned and a very different path to get there. The first was just our agility. We, I think, really tried to lean into the all-digital work from anywhere world that the pandemic has forced upon every company and created an operating model for Salesforce. We call it our pandemic operating model, really around the principles of relevance, just making sure that we're selling tools to help companies create digital customer experiences, which is more relevant than ever before. If you look at some of the innovation we released like our Vaccine Cloud or Work.com, which helps companies reopen their offices safely. We really embraced that idea of relevance and agility to make sure we're bringing our platform to market with our customers in ways that are as relevant as possible in this pandemic and this kind of post-pandemic world. Number two is around enablement. That's a term that we really mean to say we need to make sure that every person at the company knows what's going on and how to engage with their customers right now. And that's we do all-hands calls with all 50,000-plus of our employees every single week. We haven't done that since our start-up. And we're really trying to teach our customer-facing people and our product developers how to operate in this new normal. We did over 6 million customer meetings via Zoom this past year. And teaching our customer-facing teams just how to engage. This is a really big change for the company and we really leaned into that. And then the final principle is just participation, just making sure that every single one of the employees at Salesforce really picked up the phone and asked their customers how they can help. And I think that really resulted in, and I'm really proud of our performance, we really executed well. I think we'll talk about it more, but really seeing some adoption of our platform in ways, I think, really represent an acceleration of the digital economy from consumer goods companies going direct-to-consumer to explosive growth in our Commerce Cloud, explosive growth in digital customer service channels. A lot of companies thinking about their B2B sales companies, thinking what does the digital selling team mean now, but also looking out multiple years from now. So really seeing just the acceleration of the digitization of the economy across every industry.

Yes. And it's a good point. It sounds like a lot of this is being able to be flexible, right? And showing the dynamism, both in terms of the dynamism and the flexibility that Salesforce can offer to their customers by using a modern platform for developing new application functionality or just having modern applications themselves. The flexibility that you had to show as COO in terms of helping your organization shift towards a new selling model on a going-forward basis, and this was your first year as COO, I mean, taking a look back. That was an interesting time frame for Keith Block to hand over the reins in terms of running Salesforce.

Right before the pandemic, he was like, good job [indiscernible].

So as having kind of been COO for the past year, were you able to -- I mean it seems like it's so much of kind of what you had to do was reacting to events. Were you able to push through kind of the changes or the program that you wanted to do? I mean you take over this role. It's a great responsibility, a great opportunity. But were you able to do what you needed to do? Or is this more of a reaction year?

That's a great question, and it's a mix of the two. I'll tell you, I think we, as a company, really feel like we were able to really accelerate our big strategic initiatives that we have been talking to you and our investors about for a long time: international expansion, verticalization of our product lines and our distribution organization. Really, the expansion of our portfolio and making sure that every aspect of our portfolio from our Sales Cloud, our Service Cloud, our Marketing Cloud, our Commerce Cloud, Tableau, MuleSoft are all having healthy growth in the sort of overall deploying point solutions, but actually deploying a Customer 360, an end-to-end customer experience. And I think we really were able to accelerate all of those trends this year. In part, because if you think about the agility that I mentioned that we achieved internally, every single company is going through this. Doctors' offices are going to telemedicine. Consumer goods companies are going direct-to-consumer and need e-commerce, so they need digital service, they need order management. Every selling team, I talked about our 6 million Zooms, every B2B selling team is going through a similar transformation. So really, when I looked at our overall strategy that has been a pillar of our growth for the past few years, we really leaned into that this year. And I think some things have changed. Some technologies are more relevant now than they were 12 months ago. But I think we're really well positioned for that because we are essentially selling these digital customer engagement technologies. And similarly, the story of how we transformed ourselves is a little bit of what the value proposition we're selling to our customers. We -- our vision, we call it success from anywhere. And every single COO I talked to is talking about flexible work. And they're talking about the digitization of their supply chain and the business model shifts they've gone through. Many orient around those direct trusted customer relationships. And so we're really trying to align our transformation with the value proposition we're selling our customers. And I think if there's anything that reinforced is that our company was very well positioned to succeed this past year, but more importantly, succeed in this post-pandemic world. We've been calling it all-digital work from anywhere. It's a fun kind of cocktail party conversation to say what does the new normal look like? All I can tell you is it looks a lot different than it did in 2019. And it's probably more similar to what we're experiencing right now than not. And I feel really confident that we're set up well to sort of take advantage of that environment.

Yes, definitely. It's going to be a much different world on a go-forward basis but -- any way you look at it. But the way I look at it, it seems to be a really good -- Salesforce has a really good positioning for where the world is going to come out to, if you will, in that your customer interactions have to shift digitally. We can't be relying on kind of the physical interactions anymore in the same way. That's going to be part of the story that we're talking about before we kicked off. But that digital interaction is going to be key. Having good consistency in that conversation with the customer, no matter what channel, is going to be key. Having good grasp with the data, and being able to make use of that data is going to be key. And these are all the elements that Salesforce has been putting in place over the past decade. So correct me if I'm wrong, but it seems like you -- your portfolio is really in the sweet spot of the CIO priority list as we enter your FY '22, but calendar year '21.

I agree. And actually, I think implicit in that is we're really focused on the customer, Customer 360, that's our value proposition. And the -- I think in March and April last year, everyone was in paralysis, just trying to figure out how to grapple with the pandemic. The #1 priority in every boardroom and in every executive team is growth right now, just getting back to growth. And I think when you look at our portfolio, when we say Customer 360, it's sales, it's cost service for both B2B and B2C base. It's digital marketing is as relevant as ever before. It's e-commerce, both B2B2C. It's Tableau, which is our analytics platform. It's MuleSoft integration platform and its complications built on top of these, which is particularly relevant as companies are building these direct trusts and customer relationships. If you go to any company industry and you're asking what's your growth strategy, it's really oriented around that suite of technologies. And in particular, a combination of them. That's why our sort of multi-cloud strategy or customer B2B strategy is so important. If you're a going direct-to-consumer, it's really about the customer experience, which is a mix of digital marketing and it's a mix of e-commerce, it's a return system, it's buy online, curbside pickup. It's all these things together, and I think we're really uniquely positioned to provide it. And you can really see it in the numbers just in the adoption of our platform. We're doing almost 3 million commerce orders per day, 622 million commerce page views per day. Marketing Cloud, our marketing messages are up 17% from Q4. Mobile push is up 131% year-over-year, that's pushed notifications to apps. SMS is up 171% year-over-year. Those are not normal numbers, right? I mean that's -- that just really reflects that the whole economy has gone digital. So you're seeing definitely pockets of our platform. I call it the digital interaction parts of our platform are just disproportionately being adopted. But behind the scenes, our value proposition to our customers is more relevant than ever before. And in particular, one of the things that we really take pride in is not just being a vendor of software, we're really trying to show up to our customers as a trusted digital adviser. And I think that role of trust and our sort of consultative relationship with our customers is more important than ever before because the transformations are uncomfortable and uncomfortably fast right now because of the -- just the shifts in the economy. So I think it's both our technology and our relationships with our customers, I think, have really driven our momentum this year.

Yes. And we've heard that across a lot of companies over the past couple of days at the TMT Conference that those existing customer relationships having that trusted relationship, being a trusted partner of your end customer is key to driving additional technology adoption being the key vendor when these guys are trying to do their digital transformations. So I wanted to shift gears a little bit and start with Slack. Obviously, one of the big, big news items for Salesforce over the past year, one that you've been spearheading that. And in full disclosure, probably I'd say the part of the story that investors are still trying to wrap their head around and trying to figure out why Salesforce needs to own Slack rather than partner with Slack rather than develop an alternative yourself, so maybe I'll just ask the question to you is, what was so compelling about the Slack asset that this was the big bet from Bret Taylor because this is really something that Marc put onto your lap, but an important objective for Salesforce to spend so much capital on a go-forward basis.

Yes. I think it is really based on a thesis that we really firmly believe, which is the future of work has fundamentally shifted from where it was a couple of years ago that I've talked to -- I probably talk to 10-plus executive teams every single week. And the topic of flexible work and the digitization of kind of the back office all the way through to the customer experience is very permanent. Every single company has travel and entertainment policies, real estate policies. Everything is on the table now in ways that they weren't before. And then similarly, when you think about -- just talk to anyone about what meetings you're going to get in an airplane for 2 years from now. You probably don't know, but it's probably significantly fewer than before. We're in the era of Slack and Zoom, and we're not going back. I look forward to doing conferences like this in person. But a lot of interactions will be permanently digital. And when we think about is, what is the operating system for growth in this new normal, in this all-digital work anywhere world? It looks a lot like Slack and our Customer 360. And I look around our portfolio and say, okay, let's start with Sales Cloud. What does it mean to be a digital selling team and drive growth in that? What an opportunity to use Slack to engage with your partners, engage with your customers to engage internally for selling teams, which is the primary way selling teams work today. For customer service. What does it mean when a call center is no longer a building, right? It's a digital incarnation in the cloud. How do you do case forming? When someone is in the field with our field service product, which is the #1 in its category, how do you collaborate with the contact center to get fast time to resolution and move on to that next case? You look at marketing, e-commerce and go to any digital department, talk to a Chief Digital Officer, Slack is their command center. And so you say, "Like, why do you want to own it?" Well, it's really based on the foundational belief that actually this is a really foundational shift in the way we work. And there's a vision for the way people work that Stuart and that team has, it's inspirational. And we're really thinking about it as a much more disruptive new view of even how our own software works. And then we really see Slack as really representing that future. And I think that the opportunity for our customers is far greater with the 2 of these combined. And I think the synergies and the opportunities, not just for us, but actually for our customers to benefit from these 2 platforms coming together is just really an amazing opportunity.

Got it. That's interesting. So when you described being Slack as that command center, the -- my perspective, and when I was thinking about, why does Slack make sense for Salesforce? I thought about it from like a user interface perspective, right? Like let's take a step back and think about fundamental principles. Salesforce is a, by and large, a user-based model, right? It's -- you have application functionality and data that you want to drive to users and the -- you price it on a per user basis. But right now, it's mostly -- your users are in sales, your users are in service, your users are in marketing. But there's a broader enterprise that, that data and those business processes could be useful for. And Slack brings that user interface in front of everybody in the organization, and it creates a much -- it creates a tip of the spear, if you will. It creates an ability for you guys to pull more of that data or maybe push more of that data and that application functionality across a broader set of users. Does that resonate?

Yes. I mean it's a really wonderful point. I think if you talk to happy Slack customers like Intuit or Xero that are also Salesforce customers, it really is about that. How do you engage every stakeholder in the business needed to drive that customer experience, drive that employee experience. And it's incredible ease of use and incredible engagement really drives that. One thing that I think is really unique about Slack because it's not just an interface. It's not just a collaboration go-to platform. There's 2,400 apps on the Slack platform, 1 million weekly active developers. It's really connecting every person and every system for these companies. It's an open platform and a really open ecosystem. And I think that's a really powerful technology that if you're thinking about whether you're a CIO, a CEO, a Chief People Officer and you're faced with defining the new normal for your company, and you're saying, "Okay, how do we make sure our culture maintains? How do we make sure we maintain growth? How do we maintain our customer experience?" Really thinking about a digital interface that can tie all these things together, whether you're in the office or in an environment like this, we're sitting in our homes, the openness of that platform and the ability to engage with every stakeholder, as you described, I think, is a really unique value proposition.

Got it. And in that open ecosystem, the degree of partnerships that they have already, the degree of integration that they have already, does that create a key differentiation between why Slack is fundamentally different than what you guys were trying to do with Chatter, which was more so -- Chatter was just about the Salesforce ecosystem. It's just about within your internal, but this is broader. This is being a fundamental collaboration layer across every application, every user.

I think it is the breadth and the openness of this platform is really unique in the marketplace. And I think it's why so many Slack customers have built custom integrations, and it really becomes a tool for every workflow at your company. And that openness and really thinking of this as a platform as a system of engagement for all of your internal tools, all of your external customer engagement is truly unique. The other thing that I think is really compelling is Slack Connect. Slack Connect, for those of you unfamiliar, is the ability to create a channel with customers or partners. So really not thinking about this new way of working and a sort of myopic internally. It's not just about engaging with your colleagues, it's really about engaging with your customers or partners. And I think when you think about that new normal and when you're going to get to an airplane and when you aren't, right? Slack Connect is an incredibly powerful tool. And it's why I think that management team has always been very clear about our strategic Slack Connect was to their growth. And I think it was really important to us as we're looking at the opportunity of bringing these 2 platforms together.

Got it. Two more Slack questions, then I probably will move out. I think this is super important to investors better kind of understanding the story here. It sounds to me that there's also a data aspect of it. That Slack is also part and parcel of the Customer 360 view. So you're a sales team sitting down, talking about the sort of how we're going to -- you're going to try to address this customer, how we're going to try to get the sales done. You're having that conversation in Slack. That's important data, right? That has to do with that customer. That's where you're putting in some anecdotal information. Slack Connect, so you're doing those partner conversations or customer conversation versus Slack, that's important data. Is part of the appeal, is part of the value proposition that this is an alternative source of data and a new type of data that's not necessarily in your transactional systems that can now enrich that Customer 360 view?

Yes. It's an insightful point. And I do think it's not just data, it's also integration. Integration is a topic that we're very passionate about after bringing MuleSoft onboard more than 3 years ago, and it's been one of the fastest-growing acquisitions in our history, just an incredible -- incredibly performing asset for us, but also just reflects the importance of data in building the Customer 360 and the importance of integrating all your legacy systems. Data is siloed right now. So it's not that our customers don't have the data, they just don't have it in a connected way. And if you can walk into a contact center, there's a term I love, which is called swivel chair integration. It means you're looking at every single app in screen, and we're relying on people that do essentially make up for our failures in information technology. And I think the opportunity for Slack to not only unlock access to all your enterprise data, when you're really trying to build the Customer 360, but also do it in a really integrated way right into the workflows of the employees that are actually having to provide that customer experience, make the strategic decisions. And I think it's very complementary with our vision of MuleSoft, which is really for -- particularly, for IT departments, this platform for data and integration. And I think it really reflects, as a company, we're talking about building a Customer 360, building a single source of truth. It's inclusive of all of your enterprise architecture. It's inclusive whether you're building a custom data lake on Amazon Web Services or Azure. It's inclusive of all the other Software as a Service applications you use. It might be inclusive of the mainframe you can't get rid of. And there's a lot of customers integrating that with their Customer 360. So we're really, I think, strategically thinking about data and integration as one of the key value propositions of Salesforce in our platform.

Got it. Last, quick Slack question. This comes to kind of distribution. This is my opinion, but I think over the past year, and definitely through the pandemic, I think Microsoft outcompeted Slack in the marketplace. It got better Teams penetration, it got better Teams momentum through the crisis, despite the fact that Slack is a better technology. And Slack is a better solution today. And to me, it comes from the fact that Slack was very much a technology sales motion. There's a bunch of Silicon Valley guys who are selling their technology because they knew it was better versus solution selling, and Microsoft just really ate their lunch by solution selling and saying, "Hey, listen, here's how you're going to solve collaboration. Here's how we're going to help you through this crisis." And to me, one of the key revenue synergies or potential synergies of this transaction is Salesforce is an awesome solution-selling company, right? So can you talk to us a little bit about that, like how -- what's the strategy for selling against Microsoft? Or kind of change that competitive dynamic and getting the momentum shift back towards Slack in what is Microsoft's bread and butter? I mean they do productivity tools, that's their core business.

Yes. With every single one of our acquisitions, we really think about how can we bring the full power of Salesforce to our customers to help them solve their business problems. And I think it's a customer-oriented way of saying what you just said, which is we don't bring these technologies to our customers as LEGO bricks that they have to construct themselves. We come to them, and I'll talk about the acquisitions we have closed. We can say, "Okay, we're going to help you with your sales transformation, and we'll use MuleSoft as the integration platform. And here's Tableau to help you see and understand all the data in your sales process, you can make better business decisions." And that orientation towards helping our customers with end-to-end solutions, which is really why we call it Customer 360. It's not just a technology. It's really transforming the customer experience is the way our customers want to consume the technology. And as you allude to, I think a really great way to bring some of these technologies that's sold in isolation may be less compelling stand-alone value proposition. The other thing that -- and you mentioned Keith earlier in this call, I think it's one of his legacies that the company is, I think we're really also really focused on our industry verticals. We've now developed not just industry-oriented, customer-facing teams. We have 12 industry clouds, which are really out-of-the-box industry business processes that are fundamental to our customers' needs. And I think the opportunity of both with this -- not only Slack, but with things like Tableau and MuleSoft, I think, is an incredible opportunity. It makes it easier for our customers to consume the technology. It makes it faster time to value, and it's a more complete value proposition for our employees. So it's really a win across the board.

Got it. And that's a good transition into talking a little bit more about verticals. I think the second kind of biggest kind of investor question that I get is, is Sales Cloud fully penetrated? You guys -- based on IDC of like 40% market share and we've seen some slowdown in the revenue growth line there, is growth done in Sales Cloud? Is growth done in Service Cloud, that's a $5 billion business. And to me, the answer is particularly maybe in Sales Cloud, Service Cloud still has a lot of room to replace legacy assets, is the verticalization strategy just opens whole new market opportunities. You could so much deeper into an organization. Does that vertical strategy, does it -- like, one, can you give us any sense of how much deeper of an engagement you could get? But two, does it apply evenly across the cloud? Is there as much of an opportunity in Sales Cloud as there is in Service Cloud as there is in Marketing Cloud? Or does it favor one versus the other?

Yes. So I actually think right now, maybe contrary to some of the folks who asked the question, I think it's a really exciting time for Sales Cloud and for B2B sales in general. Just look at how disruptive it was this year. I mean, B2B sales is oriented around people getting together at restaurants, conference rooms, and it's a really human process. Everything has gone digital overnight. And it's just opened up the door towards innovation and for growth. And I've actually been in probably more interesting sales transformation discussions this year with our B2B customers than I have in years just because so much has changed, and it's sort of opened up the door. When I say we did 6 million Zooms this year on our own selling team, it's a great example because we're not going to go back on the other side. And you say, "Okay, what does it mean to have an effective digital selling motion in the all-digital work from anywhere world?" There's a lot of transformation there. And there's a lot of transformation that I think our sales software can really help with. To answer your specific question on verticalization, I think it really does spend clouds. And it's different for industries. If you have manufacturing cloud, it's really oriented towards the sales use case. If you look at something like our Financial Services Cloud, it's very integrated. It kind of blurs the line between what you would call service and sales because it's really about having a single view of your customer across your retail bank, your commercial bank, your investment bank to really say, "Okay, I've grown up these departments of the bank in silos, and now I want to get growth synergies across them." And really have a single view of you or me across all of those different touch points that you have in it. If it's your retail and you look at things like retail execution, it touches all of these different workflows. So when I look across all of our clouds, our industry strategy is inclusive of all of them. And we really view it as for sometimes, we'll have a customer that's buying just a point solution, maybe they have an RFP for an itch that they need to scratch. And I think we -- that will always be an important part of our business. But when I think about our enterprise relationships, I think more and more of our customers will be customers of our industry solution simply because it's faster time to value, lower total cost of ownership. You know I had a CIO a week ago tell me, I don't want to be in the software business. And so -- and when she was looking at our industry's cloud, that was, for her, and then more of the intellectual property she needed to do to sort of orchestrate and digitize. Her business were built by us, built by the engineers at Salesforce. So I think it's going to touch all of our clouds. Every industry will be a little bit different just because the key value proposition for growth around the Customer 360 will vary across industries. But across the portfolio, I think it will fairly evenly touch all of our different clouds.

I'm just trying to sneak in just one last question, we're coming up on time. This is an incredibly fast 30 minutes. But I wanted to talk about the platform business, the app platform. Because one, low-code, no-code platforms in sort of the automation of more workflows in those low-code/no-code platforms and sort of the automation of more workflows in those low-code/no-code platforms is an area that we think is going to garner a lot of incremental net new demand over the next couple of years. Two, IDC puts you guys as the leading platform in that space with a leading market share. But three, it seems like there's a lot more competition coming to the space from all different vectors, whether it's Microsoft with Power platform, whether it's ServiceNow, talking about being the platform of platforms, whether it's the RPA vendors trying to have a fuller perspective of what they're doing. How are you guys thinking about the platform business on a go-forward basis? What are the key initiatives going on there? And how do you fend off this increasingly competitive environment?

Yes. Low-code is really relevant right now. And I think it's why you're seeing a lot of companies talk about it. And it's the one simple reason, which is speed is more important than ever. If you just look at this past year, companies who are able to gain market share and grow are the ones who move the fastest. And I think that if you look at the economy right now, it's just the change is not really slowing down. And I think there's a lot of uncertainty. So at the CEO level, I think agility has become a key strategic kind of initiative for every single executive and they look over to their CIO and say, "I don't want a multiyear project that lands after this -- after we've lost our market share, right? We need a platform that gives us agility now." And so that's a huge part of our value proposition. And you're seeing the power of it. I mean a great example is early in this pandemic when the small business administration started the PPP loans process. We had customers like Zions Bank, stand up a loan application portal in 7 days. And it was interesting. Obviously, that was a great relationship with Zions Bank, and they were able to take advantage of speed and processed a decent number of those loans. But it's also a testament to the platform in low-code, right? Because that's something you can only do with this low-code platform. And actually, one of the things I think will, I hope, will be an enduring legacy of this year is kind of, I think, generally, the industry, except, let's not overcustomize. Let's not have implementations that last year's done this better than perfect. And I actually think that that's the philosophy, which our platform certainly represents, and it's something that I know our customers appreciate. I think it's also a healthy way to consume enterprise software.

Outstanding. Bret, unfortunately, we just sped through that 30-minute time slot. I'm going to have to book you for 1.5 hour next time around because there's a ton to talk about in the Salesforce story, a lot of really interesting stuff going on. Really appreciate you spending time with us to talk through some of it. And let's put a mark in the calendar for this time next year, we'll do it in person and give it the full hour, at least.

That sounds great. Thanks, Keith.

Excellent. Thanks so much, Bret.