Salesforce Inc plans to cut its workforce by 10 percent and close some offices, saying it needs to cut costs after rapid pandemic hiring left it with “too many people” amid an economic slowdown, sending its shares up 5 percent.
The cloud-based software company said on Wednesday that it expects between $1.4bn and $2.1bn in charges due to the job cuts, of which about $800m to $1bn will be recorded in the fourth quarter.
Companies from Meta Platforms Inc to Amazon.com Inc have in the past year shrunk their employee base to prepare for a deep downturn as global central banks have aggressively raised interest rates to tame stubbornly high inflation.
Businesses that relied on cloud services during the coronavirus pandemic are now trying to reduce expenses through job cuts or delaying new projects, hurting companies such as Salesforce and Microsoft Corp.
“The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions,” Co-Chief Executive Officer Marc Benioff said in a letter to employees.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff added.
Benioff, who co-founded Salesforce in 1999, said United States employees being released will receive nearly five months of pay, health insurance, career resources, and other benefits.
“This is a smart poker move by Benioff to preserve margins in an uncertain backdrop as the company clearly overbuilt out its organization over the past few years along with the rest of the tech sector with a slowdown now on the horizon,” Wedbush analyst Dan Ives wrote in a client note.
Salesforce had nearly 80,000 employees at the end of the third quarter, up from about 70,000 a year earlier.
The company said in its quarterly regulatory filing that it increased headcount “to meet the higher demand for services”.
Salesforce shares were up 3 percent on Wednesday. They lost roughly half their value in 2022 as Salesforce posted four consecutive quarters of slowing growth.
“Companies will want to show voting shareholders that they can once again deliver value through investment returns even amidst a downturn,” said Joshua White, an assistant professor of finance at Vanderbilt University. “Layoffs will be a big part of that equation.”