Workers at Salesforce, all the way up to co-founder and CEO Marc Benioff, could breathe more easily this week after the business-software company posted considerably more robust earnings and guidance than analysts had estimated, prompting plaudits from Wall Street.
But challenges remain.
Like other cloud software developers that have seen their shares beaten down because of rising interest rates, Salesforce is focusing more than ever on profit. That might make it harder for the company to build technology to address emerging threats, such as the evolution of a longtime partner into a competitor.
That’s the dynamic playing out at Veeva Systems, which sells software to life sciences organizations. Veeva is also on an upswing, with shares rising 4% on Thursday after the company’s stronger-than-expected quarterly earnings.
Veeva built its core software on top of Salesforce’s app-development platform, but that will be coming to an end in 2025. The risk is that other companies built on Salesforce might be inspired to follow Veeva.
“If I was Salesforce, I would actually be worrying about the long-term implication of that,” said Rishi Jaluria, 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 pointed to banking software maker Ncino, whose CEO, Pierre Naudé, said in 2021 that it was the largest company building on Salesforce after Veeva.
Salesforce and Veeva are closely intertwined. Peter Gassner, Veeva’s founder and CEO, ran the Salesforce platform before starting Veeva in 2007. “Peter has been an outstanding CEO,” Benioff was quoted as saying 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 holds that Veeva is on the hook to pay Salesforce as Veeva customers use Salesforce’s platform — and costs have risen as more people have come to rely on Veeva. In exchange, Salesforce won’t enter Veeva’s specialized, regulated market.
That sort 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 $28 billion market capitalization. Veeva accrued about $7 million in fees payable to Salesforce in the October quarter, according to a regulatory filing.
After Veeva announced the news alongside financial results in December, Gassner and other executives spent time fielding a variety of questions from analysts about the change during a conference call. “I think overall for customers, this is a positive,” Gassner said. “It simplifies their landscape.”
Veeva, which pays Amazon Web Services for hosting capabilities, will transition its customer-relationship management software to its own Vault platform. The plan is to provide tools to help clients move over, although they have until September 2030 thanks to a five-year wind-down period specified in the agreement.
Veeva will demonstrate its software using Vault at its Commercial Summit conference in Boston in May, Paul Shawah, Veeva’s executive vice president of strategy, said on a Wednesday call with analysts.
Jaluria said he doesn’t think Salesforce will be able to compete effectively against Veeva after the agreement ends in 2025. Salesforce’s push toward increasing profits, which came about as activist investors asked questions about Salesforce’s balance of growth and margins, might not help, he said. “But even before that, Salesforce hasn’t shown us their ability to develop industry cloud organically.”
Under Benioff, Salesforce has fueled a lot of its growth through acquisitions, and there was once a time when Gassner could have ended up back at Salesforce. A Salesforce presentation that leaked in 2016 included Veeva on a list of “potential acquisition targets.”
Today that looks unlikely. Gassner is directing Veeva to move off Salesforce, and on Wednesday Benioff said that the Salesforce board has disbanded its committee on mergers and acquisitions.
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