Salesforce Inc.'s shares surged Wednesday, after the company forecast its profitability would increase in the coming year as it faces activist shareholders focused on spending levels at the business-software provider.
For its just-started fiscal year, Salesforce projected widening profit margins and revenue that would surpass analysts' forecasts.
Salesforce shares rose over 15% in after-hours trading. Before the earnings were announced, the stock had fallen around 21% over the past 12 months, while the tech-heavy Nasdaq Composite Index declined around 16%.
The company said its revenue grew 14% to $8.38 billion in the three months through January. It reported a loss of $98 million for the quarter. Analysts had predicted revenue of $7.99 billion, according to FactSet.
The company predicted that revenue for the current quarter would come in between $8.16 billion and $8.18 billion. Wall Street had projected $8.01 billion.
Salesforce is struggling with a sales slowdown. Its revenue growth has averaged around 25% for years but has been slowing as companies delay orders and demand less of its services.
Billings, a measure that reflects business transacted during the quarter and serves as a leading indicator of revenue trends, rose 13% to $14.68 billion in the fiscal fourth quarter. Analysts had expected billings of $13.74 billion.
Analysts anticipate billings growth to stay near the single-digit range for the next two quarters, according to FactSet. That could mark one of the slowest stretches in the company's history.
Salesforce, which makes software for sales professionals, has been around long enough to have experienced some rough economic spells in the past. Salesforce's billings growth hit a low of around 10% in early 2009 amid the global financial crisis.
Salesforce has been under pressure from investors to increase its profits amid a revenue slowdown. At least five activist investors, including Elliott Management Corp. and Starboard Value LP, have taken stakes in the company and are lobbying management for change.
Earlier this year Salesforce named three new directors to its board, including Mason Morfit, the chief executive of ValueAct Capital, one of the activists that has taken a stake in the company.
The Wall Street Journal reported in January that Elliott was preparing to nominate its own slate of directors. Last month, the activist investor privately nominated a slate, according to people familiar with the matter. Elliott isn't necessarily aiming for a proxy battle with Salesforce, the people said, and instead is hoping the pressure from the nominations could help with the company's results.
The company has also had to deal with a revolving door of high-level executives, including the loss of a second co-CEO in as many years.
Last year, Salesforce executives laid out to analysts a plan that would boost its adjusted operating margins to 25% from around 19% by 2026. The company on Wednesday projected adjusted operating margin of about 27% for the current fiscal year.
To reach these levels, Salesforce has undertaken some cost-cutting measures. In January it announced its largest-ever layoffs of 8,000 workers, or 10% of its overall workforce. The company has halted nonessential travel for many employees who don't work directly with customers. It also has pared back some of its real-estate leases.
In an interview last week, Salesforce President Brian Millham said the company is trying to be more efficient with a smaller sales team. The strategy is to reduce the number of sales teams per account, trim support staff and push more customers to self-serve options.
"You have to have those things in place if you're going to go operate the business in a more profitable way," Mr. Millham said.
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