Motley Fool Money - Platforms, Platforms, Platforms

Episode Date: February 29, 2024

For Snowflake, Okta, and Snowflake, growth may come from more products not just more customers. (00:21) David Meier and Deidre Woollard discuss: - The power of a great CFO. - What a change in leadership means for Snowflake. - Why growing revenue isn’t just about new customers. (17:00) Gary Stevenson, author of “The Trading Game,” explains what it was like to be one of the world’s top financial traders. Companies discussed: CRM, OKTA, SNOW, C Claim your Epic discount: www.fool.com/epic Host: Deidre Woollard Guests: David Meier, Gary Stevenson Producers: Mary Long, Ricky Mulvey Engineers: Dan Boyd, Desiree Jones Learn more about your ad choices. Visit megaphone.fm/adchoices

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So many platforms, so little time. Motley Full Money starts now. Welcome to Motley Full Money. I'm Deidro Willard here with Motley Full analyst David Meyer. David, how are you today? I'm doing very well. How are you? Good.

Seems like this is a tech Thursday, a SaaS Thursday. Want to dive in on companies that are really kind of making the news today, which are Salesforce, Snowflake and Octa. Let's start with Salesforce. dividend. We're starting to see dividends pop up. Meta did it. Now Salesforce is doing it. 40 cents a share. Yeah, that's all right. It's a start. But to me, I'm looking at this as a signal. How should we be thinking about this? I mean, last quarter, we definitely had, you know, Salesforce being more cautious, more, you know, they're not going off and buying things anymore.

Is this really, is this company growing up? Definitely. The dividend, if you go back 10 years, There's no way a dividend was anywhere near anyone's radar. And that's a function of Mark Beniof, quite frankly, being Mark Beniof, right? He's a visionary. He's a technologist. He wanted to put it all, put together all these pieces and create a great company, which he did. But I think that where the credit needs to really go is CFO Amy Weaver. In 2021, she became the CFO, and she had the unenviable task of trying to reinmark Benioff in

to bring more fiscal discipline to the company, right? To say, hey, if we're going to do an acquisition, it really has to meet these certain requirements not only from a strategic standpoint, but from a fiscal standpoint. And with Salesforce generating significantly more profit and cash flow than it ever has before, it's able to not only invest for growth and do it in a disciplined way, but now it's, being a bigger, more mature company, it can actually fulfill its promises of returning excess capital to shareholders in different ways. We're seeing it in buybacks. We're seeing it in dividends. And quite frankly, this is exactly the trajectory the company needs to go on. Well, good on her for doing

what a couple of co-CEOs we're not able to do. I want to talk just a quick sec about that buy back because stock-based comp always been an issue with Salesforce. They're going after it. You know, $10 billion buyback program. They bought back about $7.7 billion last year. It's going in the right direction. Yeah. This is, again, this is a complete change in the way the company operates. Look, stock-based compensation for a company like Salesforce is going to continue to be an important part of attracting and keeping the talent that they need, right, in order to take the company in the direction they want to go. Again, it's good that they have this excess cash flow where, you know,

at a minimum, they can offset the dilution and hopefully, you know, they're making opportunistic purchases with that capital at times when the stock price looks attractive. Yeah, and it's interesting because they bought a lot of things and now they've sort of been trying to figure out how to knit them all together. And so, look, looking at that, you know, it's not just a maturing company. It's still looking for growth. The big swing that Beniop spent so much time talking about on the earnings call was the Einstein platform sees it as sort of like this AI ecosystem. Platform keeps coming up in the conversations that you and I are having. We talked about it with Palo Alto networks. We're going to talk about it

a lot today. So is this a true platform? Because I worry that people are using the word platform and maybe as a catch-all that's not necessarily a platform. Beningoff talked about islands of trap data. I'm not quite sure what that means, but maybe you can explain. Yes, like we did with Palo Alto, let's step back and think about where Salesforce has come from real quickly. So, again, Salesforce that's in the ticker, right? CRM, customer resource management. That was what they were focused on, helping salespeople become more effective by giving them tools.

to figure out how to manage all of their contacts, to land new customers and talk to prospects, and et cetera, et cetera. But we've added, you have sales, you know, you have the CRM component, you have marketing component, you have Slack, productivity component. You have all these different components, right? And what they want to do is to, again, bring them together and say, hey, if you want your business to run efficiently and effectively on the, you want your business to run efficiently and effectively on the customer-facing side of things, come to us.

That is now the platform. It's not just CRM, right? It's how do I do all of that well? And the thing that they want to stitch it together is Einstein, which is the AI, machine learning, all the analytics that can basically say, hey, you're doing all these things from a sales perspective, from a marketing perspective, you know, communications perspective. what can we learn from all that data that we're creating, right?

And so becoming even more of a platform is what they are doing, and it is the right thing for them to do. So let's talk about these islands of trap data. So essentially, there are many ways in which and many places where businesses store data. It doesn't all just go to Salesforce, right? There's so many different areas where data can be. The idea is, for AI to work efficiently and effectively, we would like all the data to be in one place. So it makes the computations more efficient.

And if I can bring in more diverse groups of data, let's say sales data, marketing data, operations data, things like that, maybe I'll get a better insight. So what they are trying to do is a very worthwhile problem to go find a solution for. And they believe that their platform, all the services they have, as well as the data cloud, says, hey, if you want, you can bring all of your data to Salesforce, and that will actually make the job easier. are all going in the right direction as long as we assume that AI is going to continue to be an important part of it. I think that's true. So I like all the things they're communicating

about Einstein, Data Cloud, the platform, etc., etc. Yeah, I like the vision. I think there is something that so many companies are wrestling with is that they're generating more data than ever generative AI is pushing out more data. Everybody's got too much data. A few years ago, there was the whole data is the new oil thing. We don't know what to do with the oil. So what I'm curious about is how does it play into the sales? Because you're selling the CRM, you're selling Slack and other things. How does Einstein factor into the future? So an excellent question. Early on when they were first broiled out Einstein, again, it was a way to basically get more. out of the tools that you were already using.

I don't know the specific pricing structures, but maybe they, you know, you paid a little bit more for your CRM, and you got Einstein on top of it. So maybe you didn't sell Einstein directly early on, right? You just, you had to pay to unlock it, let's say. But now, if you take this different approach, right, it's not necessarily the software underneath the CRM, the marketing, etc. It's not necessarily, that's important, but if I can get customers to essentially pay for the value ad as opposed to just access, that's a different way of selling things and a different way of pricing things. So I don't think they've

quite figured out all their business processes to basically put Einstein front and center, how to you just incentivize the Salesforce, right? How do I make sure that all my billing software can handle these things? I think they're working on that. That's the way I would say, hey, maybe Einstein is not factored into the guidance yet. I think they're still trying to figure out how they're going to do it. And if I had to really, guess, I would say maybe that might be a little upside surprise, either later in fiscal 25 or into fiscal 26. Well, let's move on to sort of the big wow moment after market closed yesterday, which is that

Frank Sloopman, CEO of Snowflake, he's retiring. Now, he's not leaving the company. He's going, he's going to stay on as the board chair. But this really shocked people. I mean, you've got Shredar Ramaswamy, you know, he was the senior president of AI. He's been with the company a couple of years came in through an acquisition. This feels like a signal that AI is running the show, but the market got pretty riled up by this one. I have a little bit of a different thought here. Oh, good. There is no question, again, we talked about it with Salesforce. There's no question that AI is front and center, and that a lot of what Snowflake is trying to do is basically be an enabler of AI for businesses all over the world.

But I don't think Shreddard became president just because of what he's done in the AI segment. We have to remember, he actually came from Google, where he spent many years in both commercial leadership roles as well as engineering leadership roles. So, Snowflake is a complicated technical company. And not only do you need someone who understands the changing commercial landscape, but you also need a, someone who understands the changing technological landscape. And I believe that's the big reason why Sridar was promoted. He has all the chops, and it's going to be a big challenge going forward. This stuff's going to only get more and more complicated.

So having somebody with his background as well as his ability to, given he was an entrepreneur, to have a vision as well, I think. I think those are the qualities they were looking for in a CEO to take Snowflake to the next level, so to speak. Well, one of the things I've heard people talk about is that, you know, Sluutman, more of a more of a sales guy, Ramoswami, more of a technologist, as you put it. And also, but this is a company that seems to be in an interesting spot. So growth is still strong, but slowing a little bit. They talked about changing the

forecast process to be more receptive to current trends. That seems like some sort of double speak for things aren't going to get better. What's happening with this? Yeah, that's a whole lot of word salad right there. Here's my interpretation. And we're seeing this across a number of larger SaaS-oriented companies, this idea that customers are still optimizing their spending. And what that's meaning is, we know the things that we want to, want to do from a technological standpoint are important. We customers are willing to make these investments. But how do we ensure that we get the right return on the investment? And how do we make sure that our spending levels don't get out of control? So what I think that word salad is

trying to say is they don't have enough evidence to say customer buying behavior has flipped back to times when they were more willing to spend. And as a result, if we're not confident that that's happening, you can't really put that in your guidance to show that, you know, there's the demand levels are changing, the buying habits are changing, and as a result, we're going to, you know, resume faster growth. That's what I think that means. The guidance is, growth is expected to slow,

on a quarterly basis for Snowflake across calendar year 20, 2024. And I think that that statement basically was necessary to, as a justification about why that's going to happen. Well, I think we're hearing a different type of reasoning for the slowdown than we were a couple quarters ago, because we were hearing before the sales cycle is slow. This is what we're experienced. Now, I feel like with Snowflake and with all, And with Octa, too, I'm hearing more about, we're going to, the customer base isn't going to grow dramatically, but we're going to make more products. We're going to get more out of each customer.

On the Octa Call, they talked about this, the Hunter and Farmer model. So Hunter goes out, gets new clients. Farmer, you know, basically gets more out of the land. So is this a theme we're seeing? Is this a next trend of what we're possibly going to see from some of the SaaS companies? So, it's very interesting from an Octa standpoint that that's what they brought out in their call, because this model is already being used by lots and lots of different SaaS companies. The reason is, just as you said, once you get through that big push of adoption and you become a mainstream product,

you know, like customers are going to come in. Yes, we want it, we want it, we want it. But, investing in sales and marketing that gets your customers to buy more is potentially a way to get more return on those dollars. And so, good companies have figured out how to do both. So it's good that both of these companies have recognized it, and Octa brought it to the conference call with some fanfare. But as a SaaS company, you needed to be doing this.

couple of years ago. Let's put it that way. This should have been your model from day one. And it seems like the platformization is part of a way to kind of bundle that up as a sales tool, but also as a framework. Oh, 100%, right? Because if you can figure out, let's say a customer has a need for one product, you can get them in the door that way. But once you learn more about that customer, once you develop a relationship with them, once you figure out more about, about what their needs are, that's the perfect opportunity to say, hey, by the way, we also have product X and product Y and product Z, and we can bundle them together, and you can get them on our platform. And it's seamless in terms of since we're a SaaS company, you know,

you can just, we can flip a switch and you can get access. So yeah, that's spot on. Well, thank you for breaking it down with me today, David. You're very welcome, Dieter. Thank you. We talk about a lot of stocks on the show, but it's just a peak the Motley Fool's investing universe. This year, we're rolling out a new offering. It's called Epic Bundle. The service includes seven stock recommendations every month, model portfolios, and stock rankings, all based on your investor type. We're offering Epic bundled Motley Fool Money listeners at a reduced rate as a thanks for listening to the show. So, for more information, head to Fool.com slash Epic. We'll also include a link

in the show notes for you. We've got another perspective from an author who broke away from the world of high finance, I clad up with Gary Stevenson, author of The Trading Game, about his time at Citibank and the disconnect between traders and the real economic world. I want to get a little bit into your story because there are these moments in the story where you're trading and there's that tension, there's this, you had a few, like, I'd call them like stomach flip over moments. One for me is when you realize the Swiss Nest, no banks offering negative 4.5% interest on three months swaps, there's this kind of moment where I think people, who have less tolerance for risk might have pulled out their money, you went the opposite way.

And it reminds me of this, there's a saying from the economist Keynes about, you know, the market can stay irrational longer than you can say stay solvent. Tell us a little bit about what happened there. Yes, it's a very big learning experience. So that was my second four-year trading. So I started working as a short-term rates trade in 2008, which is obviously the year of the Lehman crisis. It became enormously profitable business because we were made. making short-term loans of dollars, everybody needed dollars. Basically, we could borrow them from the central bank at zero and lend them out at 2%. It was like a lot of easy money, basically.

When you do it in the FX swap, you have to lend one currency and borrow another currency. So at the time, I was a Swiss franc trader. I was lending dollars and borrowing Swiss francs. And it was kind of an easy ride, to be honest. Everybody was making a lot of money. I made a lot of money in my first year when I was extremely young, didn't know what I was doing. And I was just kind of copying everybody, really, lending dollars, borrowing. what in my case was Swiss francs, every trader has their own currency.

And then suddenly one day out nowhere, I sort of refreshed my P&A and it shows, my PNet's profit and loss for those you don't know. And it shows down half a million dollars. And I'm sort of thinking, what's going on here? I'm trying to look for the reason. I asked one of the brokers, and the brokers says, oh, Swiss National Bank puts something up on their website. And I look on the website, and the Swiss National Bank is offering this unbelievably cheap foreign exchange swap,

where they essentially lend out Swiss francs for negative 4.5%, which is, I don't need to tell you, an extremely negative rate. Yeah. Because, you know, the Swiss franc position was kind of an incidental part of my dollar position. I had an FX swap. I was lending dollars. You have to borrow Swiss francs against it. That's the way the FX swap worked.

And suddenly I was just getting absolutely hammered. And I lost something like a million dollars in that first day, basically. So, you know, I described it to you before when you trade interest rates is realizable, right? You do the trade now. You wait a year and you see was I right or not. And immediately, instinctively, and we discussed in the book whether this is real or whether it was an emotional reaction, I thought minus four and a half percent is an impossibly low interest rate.

You simply cannot keep rates at minus four and a half percent. You know, if you charge the banking system minus four and a half percent, they'll just start trying to charge that to their customers. The customers will take their money out of the bank because you can get zero percent with your money under your pillow, you know. And I just thought, it's wrong, you know. It's never going to stay at minus four and a half percent. So instead of, you know, I lost, you know, in the first couple of days,

I lost a couple of million dollars. And instead of stepping out, I sort of stepped in and backed it up. You know, it turns that I was right. You know, in the long run, those interest rates were not sustainable and they came all the way back relatively quickly. But because I was like stepping into the position quite aggressively, despite losing money, I managed to lose $8 million P&L within a week, which is an enormous amount for at the time. That was early 2011.

so not only 2010. So I'd have been 23 still. It was enormous amount of money for me to take. And I eventually ended up getting stopped up by my management. I went from up $4 million for the year to down $4 million for the year. And then obviously I had to watch the trade come all the way back. So this is just, you know, of anyone who has been trading for a long time will know this. You know, it's not enough to just be right.

You need to be able to survive. You need to be there by the time you're actually right. So it's about, you know, sometimes, being right is the easier part of the trade, sometimes the tricky part is knowing how much to do, especially if you're basically certain you're right, because if you're certain you're right, you want to do everything. But if you do everything, then even if it goes against you for, you know, a month or maybe even a week, if it's a big move, you'll get stopped out and it doesn't matter whether you're right. So I think I'd describe it in the book as basically two rules for life,

be right in the end, be alive at the end. Yeah, sizing is super important. And I tried to stand up to the Swiss National Bank and in that one instance. You know, it's one of the things I found interesting in the book that, you know, I feel like sometimes people who come in from the outside like you did, they're often able to see beyond the status quo. And one of the things in the book, it's kind of this juxtaposition of institutional and university knowledge and economic theory versus like the ability to risk, go the opposite way, follow your gut, which it seems like it's an advantage when the economy doesn't perform

the way that everybody expects it will. like so during the time period where you just you just keep betting on interest rates staying suppressed. So you were very young. Was your youth, your outsider status kind of an advantage at that point? It was in the end. Yeah, it definitely was in the end. Because I think one of the beautiful things about trading is there's not many spaces in this world that reward you for turning around to all of the people around you and saying, you guys, you're all wrong. and you know, our society, you know, human societies are not generally built to reward those people.

If you turn around and tell everybody around you, you're all wrong, then, you know, you'll become quite unpopular very quickly. And I think this causes problems of intellectual group thing, you know, and it causes problems in politics, it causes problems in academia, it causes problems in economics. Because because we as humans don't like it when we're called wrong, and we tend to punish people who say we're all wrong, we can end up in situations like where we are now. where the economy just gets worse year after year after year, and the economists are wrong year after year after year, and nobody can basically call them out. I tried to be in academia, and it's basically impossible to challenge these people.

Whereas in trading, if everyone around you is wrong, and you notice it, you are going to make an absolute fortune. It's music to my ears as a trader. When everybody around me says, no, Gary, you're wrong, because I know everybody thinks I'm wrong, I'm going to make an absolute fortune. And I think this is where, you know, we talk about class a lot in the book, right?

Here in London, there's very much a, there's a stereotype of the Cockney, wide boy, market boy trader. You know, this kind of artful Dodger type character. Because back in the 80s and 90s, we, you know, the financial area is in the east of London, which is where these people used to live. And in the 80s and 90s,

there are a lot of these people going into trading. You know, in the early 2000s, things massively changed. And by now, basically, unless you're from a very rich family went to elite schools, you're almost,

it's almost impossible to get in there. Once you're in there, there is actually like a massive sameness about these people. You know, they all, they might not come from the same country, it's very international,

but they all come from rich families, elite schools, elite universities, elite jobs, and they basically don't know anyone who is poor. And this is, these guys' job is economic analysis, right?

How much can you realistically know about the economy if you don't know a single person in an average financial situation? This is the situation, both in the universities and in most of politics and in the trading floor. So the big thing for me, so, you know, after 2008, markets predicted that interest rates would go up in 2009

and they didn't, and then 2010, and then 11 and then 12 and then 13 and then 14. So every year these guys predicted essentially an economic recovery. And after sort of two and a half years of this, you start thinking, these guys are just clueless. They're just wrong, right? But the big advantage I had is I could go out and ask people, right?

And, you know, I studied economics at the run in school of economics. So, you know, I know the theory. The theory is basically low interest rates are supposed to get your spending. But, you know, go out if, you know, at the time when rates are very low, you go and ask people, why don't you spend? Everyone will say exactly the same thing. You don't have any money. They don't have any money, you know?

And then you sit there pondering this idea. We know like billions, hundreds of billions are being poured in. Nobody's got any money, you know? And I was sort of balancing this around in my head and I was trying to work out, you know, where's this money going? And then, you know, one day you look around and you realize everyone in this room is a multi-millionaire. And you think, okay, this is where the money is going.

And, you know, it's not going to get to ordinary people. And I think that was sort of the penny-drop moment for me. And I realized what we have is a fundamental crisis of inequality. And, you know, it's nobody seriously talking about fixing that. You know, everybody wants growth and productivity. The problem is inequality. Nobody's fixing that. So I sort of realized this is not, this is not a recession.

This is not one week year. This is not two week years. This is a downhill slope all the way to hell, you know. And I started betting on that. And by the end of the year, I was Citibank's most profitable trader in the world. So you say what you will about that. Well, that's sort of the turning point in the book is you're trading all the time. You're betting on this situation.

As you said, one of the top traders in the world. These are just massive numbers shifting back and forth on your profit and loss sheet. At that point, were you still aware of like the numbers, the money behind it? Or was it, did it just become pure numbers for you? You know, this is the thing about games. We've spoken about the positive side of games, and I love games. I still love games now. Game theory is my big subject university, and I still play games when I have a little bit of time and I want to zone out.

Games are very engrossing, right, and they can suck you in and they can become addicted. And, you know, the big game that we play all of us in this world is the game of money. You know, the game of money. We're all trying to make money. We're all trying to make money. Listen, you know, I've got a YouTube channel, and I put videos that every week saying, listen, if we don't deal with this growing inequality, our society will collapse,

and your kids will be heartbreakingly poor. And the number one most common message I get sent on that channel is Gary, how do I make money? So this is the dark side of games, right? The dark side of games. You know, I put as the epigraph, a quote at the beginning of the book, a quote from my friend's granddad,

used to sort of wander around his house when he were kids and used to say to us, he was Indian, and he didn't speak much English. and you said to say, life is life, game is a game. And we never really understood what he meant. But I think I've come to understand, I think what it means is, if you focus too much on the game, then you can easily forget about what's important.

And, you know, the book, I think, has that comment about society, but it absolutely definitely has that comment about me, and you've read the book. There is, without a doubt, I became so engrossed with this game and so obsessed with this game. And, you know, I was very good at the game. But it was, it absolutely consumed me and overwhelmed me. And it just became everything that I did.

So, you know, games are great. But if you lean too much into them, there's obviously a dark side of it as well. As always, people on the program may have interest in the stocks they talk about. And The Motley Fool may have formal recommendations for or against. So don't buy yourself stocks based solely on what you hear. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow.