Workers at Salesforceright up to co-founder and CEO Marc Benioff, could breathe easier this week after the business software company posted significantly stronger earnings and guidance than analysts had estimated, prompting cheers from Wall Street.
But challenges remain.
Like other cloud software developers whose shares have fallen due to rising interest rates, Salesforce is more focused than ever on profit. This can make it difficult for a company to build technology to deal with emerging threats, such as the evolution of a longtime partner into a competitor.
This is the dynamic at play Veeva Systems, which sells software to life sciences organizations. Veeva is also on the rise, with shares up 4% on Thursday after the company’s stronger-than-expected quarterly earnings.
Veeva built its core software on the Salesforce app development platform, but that will end in 2025. The risk is that other companies built on Salesforce will be inspired to follow Veeva.
“If I were Salesforce, I’d actually be worried about the long-term implications of this,” said Rishi Jhaluria, an analyst at RBC Capital Markets with the equivalent of buy ratings on both Salesforce and Veeva. Salesforce did not immediately respond to a request for comment.
Jaluria named the banking software maker Ncinowhose CEO, Pierre Naudet, said in 2021 that it was the biggest company building Salesforce after Veeva.
Salesforce and Veeva are closely intertwined. Peter Gassner, Veeva’s founder and CEO, ran the Salesforce platform before launching Veeva in 2007. “Peter was an outstanding CEO,” Benioff said in 2017 as the two companies deepened their partnership. Veeva’s chairman, Gordon Ritter of Emergence Capital, invested in Salesforce before backing Veeva.
The agreement between the companies states that Veeva is on the hook to pay Salesforce because Veeva’s customers use Salesforce’s platform — and costs have risen as more people have come to rely on Veeva. In return, Salesforce will not enter Veeva’s specialized, regulated market.
This kind of arrangement might have been fine when Veeva was a startup. But it has grown into a profitable publicly traded software company with $2 billion in annual revenue and a market capitalization of $28 billion. Veeva accrued about $7 million in fees owed to Salesforce in the October quarter, according to a regulatory filing.
After Veeva announced the news along with financial results in December, Gassner and other executives spent time fielding various questions from analysts about the change on a conference call. “I think overall for customers it’s a positive,” Gassner said. “It simplifies their landscape.”
Veeva that pays Amazon Web Services for hosting capabilities, will migrate its customer relationship management software to its own Vault platform. The plan is to provide tools to help customers move, although they have until September 2030 thanks to the five-year cooling-off period set out in the agreement.
Veeva will demonstrate its software using Vault at its Commercial Summit conference in Boston in May, Paul Schava, Veeva’s executive vice president of strategy, said on a call with analysts on Wednesday.
Jhaluria said he doesn’t think Salesforce will be able to compete effectively against Veeva after the deal expires in 2025. Salesforce’s drive to boost profits comes as activist investors question the balance of Salesforce’s growth and margins , it might not help, he said. “But even before that, Salesforce didn’t show us its ability to grow the industrial cloud organically.”
Under Benioff, Salesforce has driven much of its growth through acquisitions, and there was a time when Gassner could have returned to Salesforce. A leaked Salesforce presentation in 2016 included Veeva on a list of “potential acquisition targets.”
Today, that seems unlikely. Gassner is ordering Veeva to pull out of Salesforce, and on Wednesday Benioff said Salesforce’s board has dissolved its mergers and acquisitions committee.
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