Yesterday, I published Nvidia, CrowdStrike & SentinelOne earnings reviews, which can be found here.

Salesforce is the 3rd largest (maybe 2nd largest now) enterprise software firm on the planet. It provides a broad suite of products to help clients optimize customer interactions. The overarching niche is called Customer Resource Management (CRM). Salesforce offers a variety of cloud services to its customers. There’s a sales cloud, which perfects consumer touch-points. There’s a commerce and marketing cloud to build online storefronts and augment promotional activity. There’s a service cloud to handle customer issues and inquiries. There’s also a platform cloud, which includes Slack.

Most recently, it debuted its data cloud. This is an aggregated analytics service to ingest, organize & glean insight from 1st party data. It conjoins siloed context and “unlocks” previously disparate sources for client value creation. It’s similar to what Snowflake does (even through the two partner elsewhere), but more for managing customer relationships. MuleSoft and Tableau are both key pieces of this data cloud. MuleSoft integrates apps and data to enable management of these products within Salesforce. Tableau is a data visualization tool to create automated progress reports and suggestions to leverage findings. Finally, it offers industry-specific clouds for sectors like healthcare. These are customized to meet specific regulatory and operational needs. All of these clouds and products make up the firm’s subscription & support revenue, which represents 93% of its total business. Professional services make up the rest.

Separately, Salesforce offers a product called Einstein One. This is a full set of AI tools, including outcome prediction, chat bots, image recognition, sentiment analytics and more. It’s considered a general-purpose AI platform infused into all Salesforce products. Most recently, through an OpenAI partnership, it debuted Einstein GPT. Einstein existed before the GenAI wave, but is now getting an upgrade thanks to it. Einstein GPT allows Salesforce clients to plug into language models (including OpenAI, Anthropic and Cohere) to make workflows more productive, intuitive, conversational and automated. It features a low code tool set to reduce the barrier for non-experts to build applications; it also boasts expert-level tools to build more complex apps. That’s Salesforce in a nutshell.  Now, the quarterly results.

Q1 pulled some revenue forward due to the leap year, which led to tougher comps. Japan, India and Canada were cited as standouts this quarter. The USA and Europe “remain constrained.” Revenue attrition was stable at 8%.

Sales cloud growth of 12% was stable Y/Y; service cloud growth slowed from 12% Y/Y last year to 11% this year; marketing & commerce growth was 7% Y/Y this year vs. 10% Y/Y last year; Integration and Analytics growth was 14% this year vs. 16% last year. Growth was fastest in Asia and slowest in North America.

Guidance assumes macro headwinds will persist. It also continues to see professional services as a growth headwind for the rest of the year, mainly due to tougher comps.

Salesforce trades for 25x this year’s earnings. Earnings are expected to rise by 23% this year and by 10% next year.

Pretty much the entire call was spent walking through Salesforce’s new Agentforce. Agentforce is an AI-powered platform with a diverse set of agents to automate various sales and service tasks. It brings together all of Salesforce’s work in Einstein AI, Customer360 (data unification across disparate source for apps) and elsewhere to create an end-to-end GenAI platform that actually drives value. He lamented on the money wasted by companies thinking they need to do all of this work alone and also the routine customer “disappointment” stemming from Microsoft Copilots.

“This is not more Copilots. So many customers are disappointed in what they bought from Microsoft  because they're not getting the accuracy and the response that they want. Microsoft has disappointed so many customers with AI."

Founder/CEO Marc Benioff

“Agentforce is deeply integrated in our platform and combines our Data Cloud and Einstein while extending the power of our Customer 360 apps in ways that we didn't think possible a year ago. This reduces cost, scales workforces and dramatically improves customer and employee experiences.” –

Salesforce President Brian Millham

Conversely, Benioff is adamant that Agentforce will drive “immediate return on investment,” which is a prerequisite for the software GenAI monetization wave finally kicking into high gear. These agents don’t replace humans, but do replace the tedious, mundane, repetitive tasks they were once required to do to truly unleash their productivity. And? The sheer diversity of use cases that can be enhanced with agents is notable. It requires very little prompting to schedule patient care cycles, handle basic customer inquiries, accelerate drug discovery, hunt for new deal pipeline, manage loyalty programs, as well as summarize documents and cases. These are just a few examples. All of this is nice, but I think real case studies offer more valuable evidence to drive his point home.

Wiley is using Agentforce agents to drive 10%+ lifts in customer satisfaction rates and a 50% rise in automated case resolution. That’s with Agentforce version one, while version two is boosting automated case resolution rates by a full 90% for a large healthcare provider, ADP and the Royal Bank of Canada too.

“Salesforce is going to be the first company at scale to deploy enterprise agents and not just any enterprise agents, the highest quality, most accurate agents in the world.”

Founder/CEO Marc Benioff 

Agentforce functions as a full-service, out-of-the-box platform to upgrade workflows across its commerce, marketing, analytics and all other clouds. That’s important to note. The diversity of Salesforce’s cloud tools means more opportunity to drive vendor consolidation, interoperability and broader agent use cases without complexity. The thoughtful integrations and re-coding Salesforce conducted for all of its previous acquisitions ensure this formula is intact. That’s a differentiator in their minds.

“I can unequivocally tell you that building these agents without a complete integrated platform is like trying to assemble a plane mid-flight, it's risky, chaotic and it's not likely to succeed.”

Founder/CEO Marc Benioff

The company essentially holds the hands of customers as they look to embrace GenAI… without doing it all themselves. The company is confident that this will cut costs, and boost efficiency too. For example, one customer was excited about getting up to a 10%-40% case resolution rate. Salesforce pushed that to 90%. To help customers along their AI journeys and to communicate how it moves them from wasting money on “AI hype” to creating real value, it launched “Salesforce CTOs.” These employees are deeply technical individuals who will specialize in diminishing Agentforce onboarding friction. Whatever it can do to drive easier adoption, it will do.

While Agentforce is full service in nature, it’s also easily malleable. In reality, Salesforce can’t build every niche use case for every client. Some will want to customize on top of the Agents platform to drive more relevant use cases for their own needs. Salesforce makes doing so in a no-code manner very easy with its GenAI tools like Einstein.

Salesforce’s commitment to never sharing or impermissibly using a customer’s data will resonate more deeply in this GenAI world. It also commits to handling all compliance issues for customers. So far, this wave has been like a wild west of shady data stealing to season models. CRM doesn’t play that game. It thinks having Agentforce integrated right into this trusted platform will make companies more eager to and comfortable with embracing GenAI. That should accelerate adoption.

For customer resource management (CRM), there is no platform play that is more clear than Salesforce. That was again on full display this quarter. Multi-cloud deals rose 80% Y/Y while 16,000 customers added 1 new cloud and 4,500 added multiple new clouds. It’s newest data cloud continues to thrive and represents its strongest organic launch ever. Data cloud customers rose 130% Y/Y with $1 million customers doubling Y/Y and consumption rising 110% Y/Y. This product directly augments every other cloud Salesforce provides to more deeply establish the value of this end-to-end platform. Along these data cloud lines, Tableau secured several large wins during the quarter including the Department of Interior.

AI also continues to be another cross-selling pillar to round-out this cross-selling machine. New bookings for its AI suite doubled Q/Q as it signed deals with Alliant, Bombardier and CMA.

Another rock-solid quarter for an elite company. The commentary on Agentforce is very exciting, although I would remind people that Benioff is always optimistic and charismatic on these calls. That charisma is generally well placed, but it’s still worth noting… especially as this quarter’s guidance revisions didn’t reflect a material uplift in demand expectations. That could just simply take more time to come. For now, we are left with wonderfully boring revenue compounding, strong leverage, more successful product debuts and more execution.

MDB trades for 106× 2024 EPS. EPS is expected to fall by 32% this year (lapping one time, high margin revenue) before compounding at a 39% clip over the following two years.

Dell trades for 14x this year’s earnings. Earnings are expected to grow by 8% this year and 20% next year.

I think this report does a decent job of how well Lulu is faring amid this macro cycle (relatively speaking). Keep this in mind for the Lulu review in section 4 of this article.

Ulta trades for 15x this year’s earnings. EPS is expected to fall by 3% Y/Y this year and rise by 9% Y/Y next year.

Zuck updated us on its large language model (LLM) lineup called Llama. Downloads continued to rapidly grow by 6.1% month over month and usage has 10Xed year-to-date. These models are open-sourced and free-to-use… so why should we care? Models are racing to commoditization. Within this reality, cost advantages will become paramount for competitive differentiation. By building world-class models and inviting the world to build with them, Meta is letting talented developers do its work for it (all while keeping the most proprietary pieces of the models to itself). This will inherently mean work to optimize efficiency and cost to train models. That is great news for Meta.

PayPal announced a deepening partnership with Fiserv (FI) to include Fastlane distribution. Fiserv joins Adyen as yet another high profile partner recently announced. This should help PayPal build immediate traction for this guest checkout accelerator.

I’m not political, but I do care about what potential presidents have to say about topics related to companies I cover. Today, Trump hinted at fully subsidizing the cost of IVF fertility treatments. These treatments are wildly expensive for patients and the companies providing these benefits. Federal aid would greatly diminish friction associated with starting new cycles. That would be great news for Progyny. This is still all speculation. Politicians like to talk.

Why did SoFi jump on such heavy volume today? I’d love to say it’s the world waking up to how consistently excellent its execution has been, but I think there are other factors at play. Beyond hopes for rate cuts, Affirm had a lot of positive things to say about repayment trends in its earnings call yesterday. Furthermore, the Supreme Court decided that it will not lift the current ban on Biden’s student loan repayment plan. This prevents a federal mandate limiting monthly payments and easier forgiveness.

Missed revenue estimates & identical guidance by 1.7%. Revenue growth was 8% Y/Y FXN.

Guidance assumes the weaker trends seen in Q2 persist throughout the year. It does not include any benefit from improving newness expected in Q3 and Q4.

Lulu trades for 18.5× 2024 earnings. Earnings are expected to compound at a 9% clip for the next two years. Estimates should be stable following this report. That’s encouraging, considering it’s at decade lows for valuation (because that assumed valuation is actually accurate).

Growth in the U.S. overall was flat Y/Y, which implies negative Y/Y U.S. women’s growth considering positive growth commentary on the men’s side. So what’s happening here? There are complementary headwinds in play that are simultaneously weighing on this business. First is macro. Lululemon’s demographic is affluent. Still, that does not mean it’s immune to macro headwinds… just look at other consumer discretionary names like Nike, Starbucks and Estee Lauder. It’s no coincidence that results sharply soured right when the macro cycle sharply soured.

But? It’s not all macro. And leadership actually thinks most of this weakness stems from its own missteps. It thinks a lot of the current recovery is firmly within its control. Last quarter, the company discussed color and sizing supply constraints as hurting conversion rates and growth. Women were coming to stores, eager to purchase compelling goods, and frustratingly leaving as Lulu just didn’t have what they wanted. That continued into this quarter. It did make some modest progress on sizing and color, but there were new learnings this quarter that compounded assortment issues.

Lululemon doesn’t think it’s working enough “newness” into its core franchises. This means tweaking colors, patterns and silhouettes (fit/shape) as seasons turn and preferences change. That’s why Starbucks saves its Pumpkin Latte for the fall; demand understandably shifts with weather.

Lulu has not done a good job this year in compensating for that. It’s “below historical levels of newness.” The newness that it did have in stock sold extremely well… it just didn’t have nearly enough. That’s frustrating and encouraging. It shows us that customers are still loyally shopping with this brand and wanting to spend money at their stores. All you have to do is give the people what they want. For more evidence of the underlying brand remaining healthy, traffic was up across its U.S. stores (uniquely positive in this environment), Google search trends remain robust and its U.S. stores remain the most productive in its space.

Its previously announced organizational shift is meant to directly address these issues, drive better communication and vastly accelerate its ability to fast track newness and lean into successful product reordering. It previously had one leader across both merchandise and design. Now, its Global Creative Director runs product design and innovation. It created a separate team for merchandising, with a new Chief Brand and Product Activation Officer in addition to having a Chief Merchandising Officer under them. It thinks these changes will establish a better balance between design and merchandising to ensure inventory decisions are actually tied to observed trends. It thinks this will lead to better expertise given the tighter focus, with faster implementation of needed change. Lulu has gotten away with historic brand success and momentum for years. Whether it’s macro, competition, assortment or likely a mixture of all 3, it is finally focused on optimizing all aspects of internal work. This is Lulu’s “year of efficiency.”

Product newness levels will improve in Q3 and Q4, but won’t return to desired levels until spring 2025. And again, Lulu did not bake any benefit from improvements through the rest of the year into its guidance.

This portion of Lulu’s U.S. business continues to rock and roll. It’s half of my wardrobe, and I guess I’m not alone. It continues to gain considerable market share here while all new franchises across performance and lounging are performing well. Its new zero sweat polo shirt is expected to be another hit and it’s leaning into inventory purchases in anticipation of this.

Despite this women’s inventory assortment hiccup, Lulu reiterated its long term 2026 targets. This calls for low double digit North American compounding and a 15% international revenue CAGR through 2026. If Lulu meets its new revenue guidance, it will have compounded at a 19% clip through the first three years of this plan. It also calls for modest operating leverage. No changes here.

The Essentials Membership Program remains a core focus. This is how Lulu can create special experiences, value and frequency. This quarter, it hosted an Essentials Members only weekend at the NYC Peloton studio. It was sold out. It also partnered with Barry’s and a few other relevant fitness brands to offer special perks for its members. That’s how you expand a loyalty program’s utility beyond solely paying for repeat business. As this grows beyond 20 million members, it will become an increasingly large and uniquely targeted marketing channel to enjoy.

During the quarter, Lulu debuted a new leggings fabric and silhouette called Breezethrough. The big test here was the model’s fabric, which was very well received. The other, lower-stakes test was the fit of the legging, which wasn’t popular. Lulu paused sales of this and will reintroduce it next year. The initial inventory purchase was very small and the impact on results was negligible. That was a positive surprise.

Lulu’s international segment is thriving on all fronts. China momentum is palpable. It’s acquiring new shoppers at a strong rate and driving rising brand awareness from a very low base. It also extended its Sweat Games to 40 cities this year, with the final taking place in Beijing last weekend. It’s important to note that Lululemon is a Canadian company. That makes relations with China a bit less fragile than the U.S. domiciled firms we cover. It’s less at risk of being used as a pawn in any trade wars.

Following successful brand building in China, Lulu plans to extend its international activation focus to Germany, the UK and Korea.

Two things are true. First, this was a weak quarter when compared to the results Lulu usually posts. Second, that weakness was entirely as expected. The issues here, in my mind, are entirely fixable. You have shoppers coming to you and wanting to give you their money. They just want some fresh, relevant assortment. Lulu has delivered that time and time again. This new organizational structure and continued traffic strength make me confident that it will figure things out.

As I said in my recent note on resuming my Lulu adding, every piece of negative news seems priced in at this point. It would take a disaster to see much more downside here in my mind. Sell-side analysts quite literally came out and said a guidance cut was coming before this report. Everyone knew. I think it’s in a similar spot to Starbucks when it was in the $70s. There are many challenges to overcome and all of those challenges are fully known and understood. That is why I think risk/reward remains so compelling. This brand is still deeply resonating and any future surprise should be positive as monetary accommodation flows in and consumer discretionary spending brightens.

I think there’s a decent chance that Lulu responds very positively to a better-than-feared quarter tomorrow. I could be wrong. We’ll see. If I’m able to get shares under 20x forward earnings (about $280 per share), I plan to deploy my 0.63% cash position into more shares. Nothing else in the portfolio will change. That will boost my stake to 3.5% of holdings. Schwab never fills my before or after market orders, so we’ll see what happens. I have to wait until 9:30 tomorrow.