Tech Layoffs Are Spreading to Salesforce, a Potential Warning Sign About the Economy

Salesforce said its clients are scrutinizing enterprise software purchases more carefully, a sign that businesses are seriously cutting back spending amid recession fears.

Salesforce
Salesforce has laid off hundreds of employees this week. Stephen Lam/Getty Images

After Twitter and Meta laid off thousands of employees in a matter of days, Salesforce, the world’s largest provider of sales and management software, announced today (Nov. 9) it too is cutting hundreds of jobs amid slowing revenue growth from its small- to medium-sized clients. It’s a sign the economy might be in worse shape than jobs data suggest.

Layoffs at tech companies have dominated news headlines in recent months. But so far, the rapid jobs cuts in Silicon Valley, which represents a tiny slice of the U.S. labor market, has largely fallen out of tune with the rest of the economy, where the unemployment rate remains at historical low levels and job openings are at record highs.

But the spread of layoffs to companies like Salesforce indicates that businesses are not only cutting back on advertising spending, as shown in the revenue slump at Google and Meta, but also curbing investments in digital infrastructure. Technology and sales are usually the last areas businesses cut budgets for in times of economic uncertainties, according to a July survey of more than 200 CFOs by market research firm Gartner.

“These cuts could indicate macro headwinds might be stiffer than anticipated,” investment bank Jefferies said of Salesforce’s layoffs this week in a note to clients today.

The planned layoff will affect workers with “performance issues” and likely take place before the Thanksgiving holiday, Protocol first reported Nov. 8. “Our sales performance process drives accountability. Unfortunately, that can lead to some leaving the business, and we support them through their transition,” the company said in a statement.

Aggressive hiring, followed by layoffs

Salesforce employed about 78,000 people as of February, according to the company website. Like many tech companies, it hired aggressively during the pandemic. In an August filing with the Securities and Exchange Commission, Salesforce said it had increased its workforce 36 percent in the past year to meet higher demand for its products.

Salesforce sells cloud-based software designed to help businesses manage marketing campaigns, sales and customer service. Its enterprise applications are used by more than 150,000 companies large and small around the world, about 60 percent of which are located in the U.S., according to its website.

However, in its most recent quarterly report, Salesforce warned profit and revenue this year would likely be lower than previously estimated. Demand was slowing down among small and medium-sized business clients, particularly in North America and Europe across communications, consumer goods, media and retail sectors, Amy Weaver, Salesforce’s chief financial officer, said in a call with analysts in August.

Bret Taylor, Salesforce’s co-CEO, said on the same call executives at some of its client companies are scrutinizing software purchases more carefully, resulting in longer time it takes to close a sale.

Salesforce’s top competitor in enterprise software, Germany’s SAP, has frozen hiring for the rest of the year but has avoided a massive layoff so far. Another major software rival, Microsoft, laid off a few hundred employees in July and announced additional job cuts in October.

Salesforce stock is down 44 percent this year, compared with S&P 500’s 22 percent decline. It currently has a market cap of $142 billion.

Tech Layoffs Are Spreading to Salesforce, a Potential Warning Sign About the Economy