2024-12-06 21:02:48
Welcome to the Free edition of How They Make Money.
Over 170,000 subscribers turn to us for business and investment insights.
In case you missed it:
Salesforce (CRM) soared 11% after reporting its October quarter.
While the quarter delivered steady growth and margin expansion, it’s Salesforce’s early success with Agentforce—a platform for building and deploying autonomous AI agents—that has captured Wall Street’s attention.
AI is reshaping enterprise software—and not always in predictable ways.
Take Klarna, for example. The payments giant recently terminated its Salesforce contract to build its own AI solution in-house. For Salesforce, this reflects the double-edged nature of AI: it creates immense opportunities but can also disrupt specific use cases, introducing unforeseen competition.
Yet Salesforce’s new Agentforce platform tells the other side of the story. Within weeks of its launch, it secured hundreds of deals, proving that AI isn’t just a threat—it’s also a powerful tailwind. Both narratives can coexist: AI presents new challenges for incumbents but also drives significant innovation and growth.
Salesforce aims to deliver actionable AI that transforms how businesses operate, and we just learned how the company plans to monetize the agent wave.
Let’s review.
Today at a glance:
Salesforce’s Q3 FY25.
Agentforce’s playbook.
Key quotes from the call.
What to watch looking forward.
Salesforce’s fiscal year ends in January, so Q3 FY25 was the October quarter.
Income statement:
Revenue has two main components:
🧾 Subscriptions and support (~94% of overall revenue).
Sales (22%): Manage and automate sales process from leads to opportunities to billing.
Service (24%): Deliver personalized customer service and support.
Platform & Other (19%): Automate processes and build business apps. This segment also includes Slack, acquired in 2021 for $28 billion.
Marketing & Commerce (14%): Plan, personalize and optimize one-to-one customer marketing journeys.
Integration & Analytics (14%), previously called Data segment. It includes Mulesoft (acquired in 2018 for $7 billion) and Tableau (acquired in 2019 for $16 billion).
⚙️ Professional services and other (~6% of overall revenue).
Help customers achieve business results faster with Salesforce solutions.
Revenue grew +8% Y/Y to $9.4 billion ($90 million beat).
Gross margin was 78% (+2pp Y/Y).
Operating margin was 20% (+3pp Y/Y).
Non-GAAP operating margin was 33% (+2pp Y/Y).
Non-GAAP EPS $2.41 ($0.04 miss).
Cash flow:
Operating cash flow was $2.0 billion (+29% Y/Y).
Free cash flow was $1.8 billion (+30% Y/Y).
Balance sheet:
Cash and cash equivalents: $12.8 billion.
Debt: $8.4 billion.
FY25 Guidance:
Revenue +8-9% Y/Y to $38 billion (low end slightly raised).
GAAP operating margin 19.8% (+0.1pp raise).
Non-GAAP operating margin 32.9% (+0.1pp raise).
So what to make of all this?
Growth momentum: The revenue beat was similar to the previous quarter. Current Remaining Performance Obligations, which represents the next 12 months of revenue under contract—grew 10% in constant currency, barely a slowdown from the 11% growth in Q2.
Slight guidance uptick: The midpoint of FY25 revenue guidance ($37.9 billion) was marginally up, mainly reflecting the Q3 beat. Recent small acquisitions will be included in Q4, partially offset by a deceleration in license revenue growth.
Margin gains: Adjusted operating margin improved to 33%, beating the 32% estimate. Cost control and efficiency measures continued to pay off.
Mixed segment growth: Mulesoft and Tableau saw steep deceleration in license revenue, primarily due to tough comps. Commerce Cloud faces competition from Shopify, highlighting segment challenges. Meanwhile, the Sales segment accelerated to 11% Y/Y.
The word “agent” was mentioned 136 times during Salesforce’s latest earnings call.
That’s because Agentforce, Salesforce’s autonomous AI platform, is the company’s most critical leap into AI yet. Announced in September 2024 and launched in late October, Agentforce allows businesses to deploy autonomous AI agents for tasks like sales, marketing, and customer support. It’s a natural extension of Salesforce’s platform strategy but with new implications.
CEO Marc Benioff believes Agentforce is transforming the business. He describes it as part of a broader shift toward “agent-first companies,” where AI doesn’t just assist humans but fundamentally redefines how businesses operate.
From automation to agency: Unlike traditional tools that rely on users for input, Agentforce leverages AI agents to proactively handle tasks and decisions, reducing friction and unlocking productivity.
Seamless integration: Agentforce builds on Salesforce’s foundational Data Cloud and Einstein AI. It connects seamlessly with Salesforce apps and federates data from external systems, ensuring the right data informs agents.
Immediate impact: Within a week of its launch, Agentforce secured over 200 deals with customers like FedEx, IBM, and RBC Wealth Management. The early momentum is undeniable.
Monetization: Agentforce has a usage-based structure at $2 per conversation. This consumption model is a critical difference compared to Copilot for M365, which is $30 per user per month. This approach means it may take longer to impact revenue as customers implement use cases, but the upside potential is more significant than a subscription service.
Benioff sees Agentforce as the keystone of an “agentic layer” that all businesses will need to adopt. He highlighted industries like healthcare, where AI agents could manage everything from patient scheduling to follow-up care, and telecommunications, where agents could augment technical support teams.
Salesforce’s strategy contrasts sharply with competitors like Microsoft, whose Copilot AI tool Benioff dismisses as the "new Clippy." Instead of adding a superficial layer, Salesforce is embedding agents deep into its platform to ensure reliability, scalability, and secure collaboration between humans and AI.
Agentforce is more than a rebranding around recent AI trends. It’s delivering measurable results. For example, Wiley, a leading textbook company, used Agentforce to handle seasonal back-to-school surges without hiring additional staff, improving efficiency and customer satisfaction. Salesforce is already touting many more customer success stories across industries.
While the financial impact will be minimal in Q4, analysts expect a meaningful uplift in FY26 and FY27. Agentforce is driving a robust sales pipeline with clients like Accenture and IBM adopting AI-driven digital labor solutions.
On the Agentforce opportunity:
“We've really created a whole new market, a new TAM, a TAM that is so much bigger and so much more exciting than the data management market, it's hard to get our head completely around.
This is the market for digital labor. And Salesforce has become right out of the gate here, the largest supplier of digital labor and this is just the beginning and it's all powered by these autonomous AI agents. […] These agents are not tools, they are becoming collaborators.”
In Benoff’s view, humans will be able to focus on strategic initiatives and building relationships while agents resolve issues, process transactions, analyze data, make decisions, and anticipate customer needs.
On the pipeline of new deals:
“Agentforce just became available on October 24th, and we're already seeing this incredible velocity, more than 200 Agentforce deals just in Q3. It doesn't mean anything because the pipeline is in the thousands for potential transactions that are coming up in future quarters.”
The last time I heard a software company CEO being this excited and confident about deal flow was Palantir’s Alex Karp when he saw the early velocity of AIP Bootcamps. We can’t quantify the potential revenue growth acceleration from Agentforce at this stage, but it could be material, even for a company the size of Salesforce.
On the impact of Agentforce on expenses:
“It's going to have dramatic implications for our company from not only the technology point of view, but also from a human resource point of view, where we can really start to look at how are we going to rebalance our headcount into areas that now are fully automated and two, into areas that are critical for us to grow like distribution.”
These efficiencies imply even more margin expansion in the quarters ahead and a rebalance of operating expenses toward sales & marketing.
“I think you've all heard that we're trying to hire 1,000, 2,000 more salespeople because we see not only maximized our productivity of our current Salesforce over the last couple of years, but we just need to grow and expand to reflect this incredible distribution opportunity.”
Salesforce is the “customer zero” for Agentforce. Management’s bullishness comes from the internal benefits they already see for the company. It’s very easy to sell a software solution that saves customers money, and they are ready to pounce. It shows that the company is all-in.
On Agentforce vs. AI chatbots:
“Agentforce is not just grounded in our Salesforce data and metadata, including the repository of 740,000 documents in 17 languages.
It's also grounded in each customer's data, their purchases, returns, that data, it's 200 to 300 petabytes of Salesforce data that we have that gives us this almost unfair advantage with Agentforce because our agents are going to be more accurate and the least hallucinogenic of any because they have access to this incredible capability.”
First-party data will favor the incumbents, and Salesforce is in a great position as the repository of customer data.
On the critical role of partners:
“Our global partners were involved in 75% of our Q3 Agentforce deals in nine of our top 10 wins in the quarter. Over 80,000 system integrators have completed Agentforce training and hundreds of ISVs and technology partners are building and selling agents. And our partners are also becoming agent-first enterprises themselves.”
This newsletter regularly covers the importance of independent software vendors (ISVs) for an enterprise software business to thrive. It’s the ecosystem, stupid.
On growth momentum:
“In Q3, the number of wins greater than $1 million with AI more than tripled year-over-year and we signed more than 2,000 AI deals, including more than the 200 Agentforce wins.'“
Milham clarified that most Agentforce wins were in the Service Cloud, but he expects other categories to follow.
Salesforce recently completed its acquisition of Own for $1.9 billion and Zoomin for $344 million, reinforcing its Data Cloud capabilities. These smaller, strategic deals mark a shift from massive acquisitions like Slack ($28 billion) and Tableau ($16 billion) a few years ago. Both deals enhance Salesforce’s ability to leverage AI-driven insights, aligning with its focus on integrating AI into its core offerings.
Walking in Microsoft’s footsteps, Salesforce has been acquisitive, though it faces less regulatory scrutiny—a potential advantage in a landscape where big tech acquisitions are increasingly under the microscope.
Salesforce Ventures announced a new $500 million AI fund, doubling its commitment to $1 billion. These investments target high-profile AI startups like Anthropic, Mistral, and Cohere, supporting Salesforce’s efforts to remain at the forefront of enterprise AI.
By investing alongside big tech, Salesforce ensures that innovations at the cutting edge of AI—particularly those relevant to Agentforce—feed back into its ecosystem. Salesforce may not yet be a trillion-dollar company, but it behaves like one.
This article would be incomplete without mentioning the sudden departure of Clara Shih, CEO of Salesforce AI and the driving force behind Agentforce’s launch at Dreamforce 2024. Shih, who had been in the top AI role since March 2023, left to set up a new Business AI group at Meta, aiming to build AI tools for businesses of all sizes.
Mark Zuckerberg’s focus on business agents, particularly leveraging WhatsApp’s ~3 billion daily active users, aligns well with Shih’s expertise.
With Agentforce already set in motion, maybe the timing was just right for her new challenge. Reflecting on her October interview with Yahoo Finance, her departure makes sense:
“I love to work on the forefront of disruption when it hasn't been figured out yet. I love taking ideas, products, companies from zero to one.”
While Shih’s departure highlights the intensity of the AI talent war, Salesforce’s leadership is no stranger to high-profile turnover. Marc Benioff has a well-known ability to groom executives in EVP and CEO roles, ensuring stability even when top leaders move on. This is where the depth of the “bench” comes into play.
As Agentforce becomes Salesforce’s most critical initiative, losing its “CEO of AI” so soon after launch could raise some eyebrows—but Wall Street remains unfazed.
The AI talent war will be a fascinating layer to watch in the coming years—and it won’t just involve big tech. Former Salesforce co-CEO Bret Taylor’s AI agent startup, Sierra, is already valued at $4.5 billion, showing that new competition can come from within.
As AI reshapes the competitive landscape, Salesforce’s ability to balance strategic acquisitions, forge powerful partnerships, and retain top talent will determine whether it can successfully ride the agent wave.
That’s it for today!
Stay healthy and invest on!
Interested in licensing our visuals for a report or presentation? Are you looking for custom visuals for your business or brand? Let’s collaborate!
Complete the form here, and we'll get in touch.
Disclosure: I am long AMZN, CRM, META, and PLTR in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2024-12-03 21:50:52
Welcome to the Premium edition of How They Make Money.
Over 160,000 subscribers turn to us for business and investment insights.
In case you missed it:
Premium members love our latest Earnings Visuals report!
Digest the performance of hundreds of companies in seconds.
E-commerce is surging back into the spotlight. After a post-COVID hangover, online shopping is close to a new all-time high, fueled by record-breaking Black Friday and Cyber Monday sales.
According to Adobe Analytics, US consumers spent nearly $11 billion online on Black Friday, a 10% jump from last year. Cyber Monday is projected to grow 6% to $13 billion. Mobile devices played a critical role, accounting for the majority of transactions. Meanwhile, in-store traffic fell by 3%1, underscoring the growing preference for digital convenience over physical crowds.
What’s behind this rebound? Aggressive discounts, shifting shopping habits, and bold moves by giants like Amazon, Shopify, and Walmart.
Low-cost platforms like Temu and SHEIN are also shaking up the market, forcing competitors to innovate. At the same time, AI-powered tools are quietly reshaping how we shop, from product discovery to checkout.
This holiday season shows how digital platforms are transforming the industry in real time. Let’s dive into the trends and strategies shaping this shift.
Today at a glance:
Cyber week trends.
Shopify’s acceleration.
Amazon takes on Temu.
Walmart’s advertising play.
AI: The quiet game changer.
The context: In Q3 2024, US retail e-commerce reached 16.2% of total retail sales. It was close to the all-time high reached in Q2 2020 during shelter-in-place orders. After a post-COVID normalization, the trend is clear: e-commerce is eating away at brick-and-mortar and could hit a new record share this holiday season.
Cyber Week (from Black Friday to Cyber Monday) showcased shifting consumer behaviors and the growing dominance of e-commerce.
📦 Digital shift: Several market intelligence firms pointed to the same trend. US e-commerce sales rose double-digit on Black Friday compared to last year, while in-store traffic was relatively flat, notably at Best Buy and Target2. Holiday shopping continued to move online steadily.
📱 Mobile dominates: 53% of online transactions were completed on mobile devices (up from 51% in 2023), marking a continued shift in consumer habits. Faster checkout experiences and better mobile platforms are driving this trend.
📆 Early shopping: Retailers launched Black Friday deals as early as October, with pre-Black Friday online sales surpassing $38 billion3 (+5% year-over-year). This strategy has stretched Cyber Week into a month-long digital shopping spree.
💳 Buy Now, Pay Later: Adobe estimated BNPL loans would grow 11% and drive $9.5 billion in online spending during the month of November. Particularly popular among millennials and Gen Z, this payment method highlights the shift toward flexible financing options.
🏬 Omnichannel in Focus: While in-store traffic declined, retailers that blend physical and online experiences like "buy online, pick up in-store” (BOPIS) are outpacing the rest of e-commerce sales. 85% of US BOPIS shoppers make an additional purchase when they collect their order4.
Key takeaway: The early insights from this holiday season reinforced key shifts in retail: softer in-store traffic, rising digital sales, and a shopping season that stretches through November. Retailers are adapting to these changes, capturing demand earlier and driving convenience-focused strategies.
With a market share of roughly 10% of US e-commerce (second only to Amazon and ahead of Walmart), Shopify’s performance during Black Friday and Cyber Monday is a bellwether for the broader e-commerce ecosystem.
2024-11-30 23:03:53
Welcome to the Saturday PRO edition of How They Make Money.
Over 160,000 subscribers turn to us for business and investment insights.
In case you missed it:
📧 Free members get our Friday articles and sneak peeks.
💌 Premium members receive monthly reports with 200+ companies visualized, one extra weekly article, and access to our archive.
💼 PRO members enjoy everything in Premium, plus our Saturday timely coverage of the most important earnings of the past week.
Today at a glance:
🏠 Lowe’s: Softer Decline
⚙️ Analog Devices: Automotive Rebound
💻 Dell: AI to the Rescue
🛡️ CrowdStrike: New Milestone
👔 Workday: Mixed Forecast
🏗️ Autodesk: CFO Transition
🎯 Target: Tough Quarter
🖨️ HP: PC Recovery Delayed
🖥️ Zoom: AI Rebrand
☁️ Nutanix: Sustaining Momentum
🛒 Best Buy: Continued Decline
⚽️ Man United: Mixed Signals
Lowe's dropped its 10-Q report this week. Q3 revenue declined by 1% to $20.2 billion ($260 million beat). Comparable sales were down just 1% versus the 3% drop analysts expected. Adjusted EPS came in at $2.89 ($0.08 beat). High interest rates and a sluggish housing market weighed on big-ticket DIY projects (similar to The Home Depot we discussed last week). However, the company saw strength in Pro sales, online performance, and spending on storm-related repairs. Smaller-ticket outdoor DIY projects provided additional support.
The company narrowed its full-year comparable sales decline forecast to 3.5%–4% (previously a range of 3.5%–4.5%) and raised its profit guidance. CEO Marvin Ellison highlighted continued investments in Pro services and adapting to evolving customer needs. Analysts remain cautious, noting that pressure on larger projects is unlikely to ease until the housing market stabilizes, which could take until late 2025.
2024-11-29 21:03:29
Welcome to the Premium edition of How They Make Money.
🔥 Hot off the press: The November report is here!
Over 100 visuals are ready for you. 📊
Cut through the noise and gain instant clarity.
Download the full report below or log in to your account.
Here’s a sneak peek.
💊 Pharma: Novo Nordisk.
🚗 Automotive: Ferrari, NIO.
🥫 FMCG: Hershey, Mondelēz.
⚡️ Energy: Aramco, GE Vernova.
💬 Social: Match Group, Pinterest.
👔 Buffett: Berkshire, Chevron, Oxy.
⚙️ Chip design: NVIDIA, Qualcomm.
📱 Subscription: Duolingo, The NYT.
🏍️ Gig economy: Grab, Lyft, Instacart.
🥤 Food & Beverage: Monster, Celsius.
🌐 Networks: Cisco, Nutanix, Palo Alto.
💻 Hardware: Dell, HP, Lenovo, Samsung.
📦 Commerce software: Global-e, Shopify.
🏈 Sports betting: DraftKings, Flutter, Penn.
🌯 Franchises: RBI, Yum! Brands, Starbucks.
🔬 Semis: Applied Materials, Analog Devices.
📊 Data: Datadog, Elastic, Palantir, Snowflake.
✈️ Travel: Airbnb, Booking, Expedia, Hilton, Tripadvisor.
🎮 Gaming: NetEase, Nintendo, Sony, Take-Two, Tencent.
🛒 Retail: Best Buy, Home Depot, Lowe’s, Target, Walmart.
💳 Payments: Affirm, Block, Dlocal, Intuit, Nu, StoneCo, Toast.
🍿 Entertainment: AMC, Disney, Live Nation, Paramount, Warner.
🛍️ E-commerce: Alibaba, Coupang, JD, MercadoLibre, PDD, Sea.
🔒 Security: CrowdStrike, Cloudflare, CyberArk, Dynatrace, Fortinet.
☁️ Enterprise Software: Autodesk, Digital Ocean, Docebo, Hubspot, Olo, Procore, The Trade Desk, Semrush, Workday, Zoom.
And more, like On, Hims & Hers, Man Utd, Zillow, Spotify…
2024-11-26 21:02:35
Welcome to the Premium edition of How They Make Money.
Over 160,000 subscribers turn to us for business and investment insights.
In case you missed it:
US stocks have soared to new highs this year.
But not every stock is riding the wave. While companies like NVIDIA and Palantir are grabbing headlines thanks to the AI craze, let’s talk about a stock with the opposite trajectory in 2024: Celsius Holdings (CELH).
Many readers requested this one.
📉 Celsius is now trading 70% below its May 2024 peak.
Why was Celsius such a big deal in the first place? Investors were betting that Celsius could replicate the legendary success of Monster Beverage (MNST)—one of the best-performing stocks of the past 30 years. For many, it felt like a second chance to capture the exponential returns Monster delivered years ago.
So, what went wrong? Were there signs that could have warned investors during Celsius’ meteoric rise in early 2023?
To understand why Celsius’ explosive growth story fizzled, we need to break down the economics of energy drinks and uncover the risks lurking beneath the surface.
Today at a glance:
Energy drink market.
Risks and telltale signs.
How Celsius makes money.
What to watch looking forward.
In 2024, the global energy drinks market is projected to reach $74 billion, with a CAGR of nearly 6% through 2030, according to Mordor Intelligence.
The chart below highlights the top brands by market share (data by Circana).
Celsius operates in a fiercely competitive industry dominated by global giants:
Red Bull: Credited with pioneering the energy drink category, the Austrian giant is still private. It maintains a stronghold on market share with premium positioning, accounting for 36% of the US energy drink market.
Monster Beverage: A leading public company in the category with an expanding portfolio and a significant global presence.
In 2014, Coca-Cola invested $2 billion in Monster Beverage for a 17% stake.
Monster inherited Coca-Cola’s Energy Portfolio, which included NOS, Full Throttle, Burn, Mother, and Relentless. In 2019, Monster launched Reign (3% market share today) to compete directly with Celsius.
In the most recent quarter, Monster faced weaker consumer demand, with its alcohol brands underperforming. Excluding alcohol and adjusted for currency headwinds, revenue grew 5% in Q3.
PepsiCo (PEP) and Coca-Cola (KO): Both beverage giants have pursued the functional energy space aggressively:
2024-11-23 23:02:04
Welcome to the Saturday PRO edition of How They Make Money.
Over 160,000 subscribers turn to us for business and investment insights.
In case you missed it:
📧 Free members get our Friday articles and sneak peeks.
💌 Premium members receive monthly reports with 200+ companies visualized, one extra weekly article, and access to our archive.
💼 PRO members enjoy everything in Premium, plus our Saturday timely coverage of the most important earnings of the past week.
Today at a glance:
🛒 Walmart: Resilient Growth
👷 Home Depot: Signs of Recovery
✅ Intuit: Tepid Near-Term Guidance
📦 PDD Holdings: Competitive Pressure
🔒 Palo Alto Networks: AI-Driven Expansion
❄️ Snowflake: Stabilizing Growth
🚗 Nio: Record Deliveries
🔍 Elastic: Back on Track
🛍️ Global-E: Re-Accelerating Growth
Walmart raised its annual outlook as consumers continued to prioritize value. Revenue grew 5% to $169.6 billion ($3.0 billion beat), and the adjusted EPS was $0.58 ($0.05 beat). US comparable sales rose 5.3%, including a 2.1% increase in average spending per transaction, driven by upper-income households. E-commerce remained a key driver, with global online sales up 27%, now representing 18% of total revenue. Walmart+ memberships and same-day delivery services also contributed to growth, showcasing the company's focus on convenience and digital services.
Management expressed optimism for the holiday season, citing robust sales in groceries, toys, and general merchandise, with early success in back-to-school and Halloween categories. While non-food discretionary spending remains under pressure, Walmart’s ability to capture market share across income groups and leverage its low-cost leadership underscores its resilience. With AI-driven operational improvements and a focus on profitability in e-commerce, Walmart is well-positioned to sustain momentum into the year-end.