As the long holiday weekend concludes, a major topic of discussion in the tech world regains momentum: whether artificial intelligence is disrupting the traditional enterprise software industry. In the coming days, Salesforce, Snowflake, and Asana are scheduled to release their fiscal first-quarter earnings. The market will use these reports to gauge the sales performance of these companies' AI tools and to assess whether emerging AI startups are beginning to divert business from them.
Here's a preliminary forecast: Regardless of the actual earnings figures, executives from these companies are likely to enthusiastically praise the positive transformations AI has brought to their operations. Last Thursday, Anil Bhusri, co-founder and CEO of the veteran human resources software provider Workday, exemplified this approach during his company's earnings report. He stated, "With AI, it feels like we're a startup again."
Of course, he did not mean the company's revenue had shrunk to startup levels, but rather that the business is rapidly rolling out various AI-powered services to customers. The company indicated that AI-related business significantly boosted the number of new contract bookings this quarter.
However, looking at year-over-year revenue growth, this benefit is not yet fully apparent. Workday's revenue grew 13.5% year-over-year this quarter, a slight sequential deceleration. The company also forecasted that its subscription business, which constitutes the bulk of its revenue, would see further slowing growth in the second quarter. Despite this, the market remains optimistic about its new AI product lineup, driving its stock price higher. A similar situation occurred with Zoom, which also reported earnings last Thursday. The company saw a modest sequential uptick in growth this quarter, but overall performance remains subdued.
The earnings reports from these two companies did not reveal signs of an "AI industry disruption leading to a winter for traditional SaaS." However, Workday's data also exposed a common issue in the software industry: the revenue from new AI business is not accelerating overall revenue growth. This implies that AI-related income is essentially cannibalizing revenue from existing business lines. For instance, Workday disclosed that its intelligent assistant business has reached an annualized revenue run rate of $500 million.
There are further indications that corporate clients are becoming more conservative in their procurement strategies for traditional commercial software. As we reported last week, many enterprises are forgoing long-term contracts in favor of shorter-term agreements of one to three years, rather than the previously common five-year contracts.
Clients wish to retain flexibility: if another vendor launches superior AI features, they want the option to switch. Some companies are also adding termination clauses to contracts, allowing them to end partnerships early if the software provider's AI applications fail to meet agreed-upon standards.
Various signs suggest that the impact of artificial intelligence on traditional software firms will unfold gradually over the coming years, with the ultimate transformation outcomes varying significantly between companies.
The following are analyst expectations compiled by S&P Global Market Intelligence, covering revenue and earnings per share (EPS) growth forecasts for several companies reporting this week:
Salesforce (reporting Wednesday) Revenue: $11.05 billion, representing 12.5% year-over-year growth. EPS: $1.76, representing 9.3% year-over-year growth.
Snowflake (reporting Wednesday) Revenue: $1.323 billion, representing 27% year-over-year growth. Loss per share: $0.83 (compared to a loss per share of $1.29 in the same period last year).
Asana (reporting Thursday) Revenue: $203 million, representing 8.4% year-over-year growth. Loss per share: $0.13 (compared to a loss per share of $0.17 in the same period last year).
Other Industry News
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