Salesforce Inc. said it plans to cut 10% of its jobs and close some offices. This is because the company hired too many people too quickly during a hiring boom, and the economy is now slowing down.
The cloud-based software company said on Wednesday that the job cuts would lead to charges of $1.4 billion to $2.1 billion, but only $800 million to $1 billion will be recorded in the fourth quarter.
Companies like Meta Platforms Inc. and Amazon.com Inc. have cut thousands of jobs in the past year to get ready for a recession. This is because global central banks have been raising interest rates quickly to stop inflation.
Businesses that used cloud services during the pandemic are now trying to cut costs and delay new projects, which hurts companies like Salesforce and Microsoft Corp.
In a letter to employees, Salesforce co-Chief Executive Officer Marc Benioff said, “The environment is still tough, and our customers are being more careful about what they buy.”
“When the pandemic hit, our sales went up, so we hired too many people, which led to the economic downturn we’re in now, and I’m responsible for that.”
At the end of the third quarter, Salesforce had nearly 80,000 employees, up from about 70,000 a year earlier. In its quarterly regulatory filing, the company said that it had hired more people “to meet the higher demand for services.”
On Wednesday, shares of Salesforce went up 3%. They lost about half of their value in 2022 when Salesforce’s growth slowed for four quarters in a row.
Analyst Arjun Bhatia from William Blair said, “It (the company) is not alone, as the sector as a whole has had to deal with a demanding environment that has significantly softened over the past year.”
The move puts Salesforce in a good position to reach its goal of a 25% operating margin by 2026. However, Bhatia said that the global economy could make it harder for Salesforce to reach its goal of $50 billion in sales.
Rishi Jaluria, an analyst at RBC Capital Markets, said, “There is a good chance that other software companies will right-size.”