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- Salesforce CEO Marc Benioff recently told analysts that the company won’t be affected by the ongoing coronavirus outbreak because it’s built to withstand recessions and crises like this one.
- Salesforce is now also urging many of its employees in areas affected by coronavirus to work from home and is suspending non-essential travel for its roughly 50,000 employees around the world in order to be safe.
- Despite Benioff’s reassurances, the company is aware it might be affected by the coronavirus in the long term.
- In its latest annual filing, Salesforce outlined four ways in which the company might be adversely impacted by coronavirus in the long term.
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Salesforce CEO Marc Benioff said on the company’s latest call with analysts that the company won’t be affected by the ongoing coronavirus outbreak. He said the company he built with co-founder Parker Harris was built to withstand recessions and crises like this one.
Since then, the situation has increased in severity, with many new cases being reported in the US. This has prompted Salesforce to encourage its employees in the Seattle area, the San Francisco Bay Area and New York City to work from home through the end of March. The company will also continue to pay its hourly workers who might see a reduction in work due to the coronavirus outbreak.
Even before then, Salesforce had already suspended non-essential travel for its roughly 50,000 employees around the world and enhancing “office protocols” in order to be safe.
When Benioff addressed the impact of coronavirus on the company, he said that, if bookings are slightly up or down between quarters, the company has enough reserves and a strong enough business model to withstand it.
“93% of our revenue is deferred, so that just gives us tremendous visibility into the future,” he said, describing the company’s model of subscription software as a “key architecture of our accounting” that illustrates “our deep contractual multi-year relationships with our customers,” Benioff recently told analysts.
Nonetheless, the company is preparing to possibly see some impact on its business due to the outbreak. While these are all speculative scenarios, Salesforce mentioned several potential effects from coronavirus, including those they can’t yet predict, in its most recent 10-K report.
Here are the four ways in which Salesforce thinks it might be hurt by coronavirus in the long term:
Weakened global economic conditions could impact business and operations
One factor that could impact Salesforce is the broader economic and geopolitical landscape. Things like the coronavirus outbreak increases political and economic unpredictability globally and increases the volatility of global financial markets, Salesforce said.
Markets around the world have fallen significantly since the coronavirus outbreak started. Additionally, businesses are being much more cautious about attending events and what technology they need to be spending money on.
“These conditions can affect the rate of IT spending and could adversely affect our customers’ ability or willingness to attend our events or to purchase our enterprise cloud computing services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition rates, all of which could adversely affect our future sales and operating results,” Salesforce wrote in a filing.
If businesses choose to be more conservative with their spending, Salesforce thinks it could impact the company’s ability to sign on new customers or retain existing customers.
Additionally, Salesforce is trying to expand its global footprint, and sign on more international businesses. But the coronavirus outbreak is a potential challenge there, as well, the company says.
Disruptions to cloud computing platforms, which could affect Salesforce
As a provider of cloud software, Salesforce relies on a few different cloud computing vendors to run its software. It currently has contracts with all three of the major cloud computing vendors: Amazon Web Services, Microsoft Azure and Google Cloud Platform.
It also hosts some of its services from its own data centers, but Salesforce noted in its filing that it is increasingly relying on third-party systems.
“We also rely on computer hardware purchased or leased from, software licensed from, and cloud computing platforms provided by, third parties in order to offer our services,” Salesforce wrote.
The company noted that the coronavirus could disrupt the supply chain of hardware needed to maintain these third-party systems that Salesforce runs its business on. A lot of that hardware has supply chains in China, where the outbreak started, and is subsequently impacting business operations in affected regions.
“Any disruption or damage to, or failure of our systems generally, including the systems of our third-party platform providers, could result in interruptions in our services,” Salesforce wrote in the filing. “In addition, the ongoing Coronavirus epidemic could potentially disrupt the supply chain of hardware needed to maintain these third-party systems or to run our business. As we increase our reliance on these third-party systems, our exposure to damage from service interruptions may increase.”
Salesforce notes that those interruptions in service could cause the company to issue credits or pay penalties to customers who are impacted. Additionally, it could cause Salesforce’s customers to cancel subscriptions or make warranty claims against it. Any of those situations could reduce Salesforce’s revenue if it happened.
Impact may not be felt until the future due to a subscription-based business model
Salesforce employs a subscription-based business model, which means many of their customers have signed long, multi-year contracts. That also means that if there is an impact on the company, it may not see it until the future.
“At this point, the extent to which the Coronavirus may impact our financial condition or results of operations is uncertain. Due to our subscription based business model, the effect of the Coronavirus may not be fully reflected in our results of operations until future periods, if at all,” Salesforce wrote in the filing.
The company is also acknowledging that it could see no impact from the virus, but that it’s too early to tell what could happen.
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Changes to customer, employee or industry events
One way that Salesforce might feel the impact sooner is via changes to conferences it hosts or attends.
Like many other companies, Salesforce recently made its annual conference in Australia, an online-only event. It is also planning to make all customer events in the month of March, online experiences.
In the filing, it added that “we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future.” However, the company notes that the impact of this on the business is “uncertain and cannot be predicted.”
These events are key for Salesforce to announce new technology and interact with their customers, in order to retain them and attract new ones. Cancelling the events or making them online-only could impact the company’s ability to sign on new customers.
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