Workers st Sales departmentup to co-founder and CEO Marc Benioff breathed easier this week after the business software company posted much stronger earnings and forecasts than analysts expected, drawing applause from Wall Street.
But problems remain.
Like other cloud software developers whose shares have fallen due to rising interest rates, Salesforce is more focused than ever on profits. This can make it difficult for a company to build the technology to deal with new threats, such as a long-time partner turning into a competitor.
That’s the dynamic at play Veeva Systems, which sells software to life science organizations. Veeva is also on the rise, with shares up 4% on Thursday after the company reported better-than-expected quarterly earnings.
Veeva built its core software on top of Salesforce’s app development platform, but that’s coming to an end in 2025. The risk is that other companies built on Salesforce could be inspired to follow Veeva.
“If I was at Salesforce, I would actually be concerned about the long-term implications of this,” said Rishi Jhaluria, an analyst at RBC Capital Markets with a buy rating equivalent to both Salesforce and Veeva. Salesforce did not immediately respond to a request for comment.
Jhaluria pointed to a maker of banking software Nchinowhose CEO Pierre Nadet said in 2021 that it was the largest company to build on Salesforce after Veeva.
Salesforce and Veeva are closely related. Peter Gassner, founder and CEO of Veeva, ran the Salesforce platform before founding Veeva in 2007. “Peter was an outstanding CEO,” Benioff was quoted as saying in 2017 as the two companies deepened their partnership. Veeva Chairman Gordon Ritter of Emergence Capital invested in Salesforce before backing Veeva.
The agreement between the companies says that Veeva must pay Salesforce as Veeva’s customers use Salesforce’s platform — and costs have risen as more people have come to rely on Veeva. In exchange, Salesforce will not enter Veeva’s specialized regulated market.
This 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 Salesforce fees 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 answering various questions from analysts about the changes during a conference call. “I think overall it’s a positive for customers,” Gassner said. “It simplifies their landscape.”
Veeva that pays Amazon Web Services for Hosting will migrate its customer relationship management software to its own Vault platform. The plan is to provide tools to help customers transition, but they have until September 2030 thanks to a five-year cooling-off period specified in the agreement.
Veeva will demonstrate its software using Vault at the Commercial Summit in Boston in May, Paul Shava, Veeva’s executive vice president of strategy, said on a call with analysts on Wednesday.
Jalluria said he doesn’t think Salesforce will be able to compete effectively with Veeva after the deal expires in 2025. Salesforce’s drive to grow profits, which came as activist investors raised questions about Salesforce’s growth balance and margins, may not help, he said. said. “But even before that, Salesforce hadn’t shown us its ability to grow the industrial cloud organically.”
Under Benioff, Salesforce has seen significant growth through acquisitions, and Gassner may return to Salesforce at some point. A leaked Salesforce presentation in 2016 listed Veeva as a “potential acquisition target.”
Today, that seems unlikely. Gassner is ordering Veeva to leave Salesforce, and Benioff said Wednesday that Salesforce’s board has dissolved its mergers and acquisitions committee.
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