Salesforce to cutoff some jobs, some offices might be shut

Key Takeaways:

• In the midst of an economic downturn, rapid pandemic hiring left Salesforce Inc. with an overstaffed workforce.
• Salesforce had almost 80,000 employees at the end of the third quarter, up from 70,000 a year earlier.

Rapid pandemic hiring left Salesforce Inc. with an overstaffed workforce amid an economic slowdown, so the company announced plans to cut jobs by 10% and close some offices.

The cloud-based software company announced on Wednesday that the job losses would result in charges ranging from $1.4 billion to $2.1 billion, with only $800 million to $1 billion being recorded in the fourth quarter.

In the past year, businesses from Meta Platforms Inc to Amazon.com Inc have cut thousands of jobs in anticipation of a recession anticipated due to aggressive interest rate increases by international central banks to combat inflation.

In a letter to staff, Salesforce, the co-CEO Marc Benioff stated that “the environment remains challenging as well as our customers are carrying a more measured process to their purchasing decisions.”

I accept responsibility for hiring excess staff before the current economic downturn because our revenue increased due to the pandemic.

At the end of the third quarter, Salesforce had nearly 80,000 employees, up from around 70,000 a year earlier.

The company stated in its quarterly regulatory filing that it had increased staff “to meet the higher demand for services.”

On Wednesday, shares of Salesforce increased by 3%. In 2022, they lost about half of their value as Salesforce reported sluggish growth for four straight quarters.

According to William Blair analyst Arjun Bhatia, “It (the company) is not alone as the sector has suffered with a demanding environment that has meaningfully lightened over the last 12 months.”

The move puts Salesforce in a great position to meet its 2026 target of a 25% operating margin. Still, Bhatia warned that the macroeconomic environment could endanger its goal of $50 billion in revenue.

According to Rishi Jaluria, an analyst at RBC Capital Markets, “other software firms are likely to right-size.”