Once a buzzword, digital transformation is reshaping markets

And impacting the latest SaaS earnings reports

The notion of digital transformation evolved from a buzzword joke to a critical and accelerating fact during the COVID-19 pandemic. The changes wrought by a global shift to remote work and schooling are myriad, but in the business realm they have yielded a change in corporate behavior and consumer expectation — changes that showed up in a bushel of earnings reports this week.

The notion of digital transformation evolved from a buzzword joke to a critical and accelerating fact during the COVID-19 pandemic.

TechCrunch may tend to have a private-company focus, but we do keep tabs on public companies in the tech world as they often provide hints, notes and other pointers on how startups may be faring. In this case, however, we’re working in reverse; startups have told us for several quarters now that their markets are picking up momentum as customers shake up their buying behavior with a distinct advantage for companies helping customers move into the digital realm. And public company results are now confirming the startups’ perspective.

The accelerating digital transformation is real, and we have the data to support the point.

What follows is a digest of notes concerning the recent earnings results from Box, Sprout Social, Yext, Snowflake and Salesforce. We’ll approach each in micro to save time, but as always there’s more digging to be done if you have time. Let’s go!

Enterprise earnings go up

Kicking off with Yext, the company beat expectations in its most recent quarter. Today its shares are up 18%. And a call with the company’s CEO Howard Lerman underscored our general thesis regarding the digital transformation’s acceleration.

In brief, Yext’s evolution from a company that plugged corporate information into external search engines to building and selling search tech itself has been resonating in the market. Why? Lerman explained that consumers more and more expect digital service in response to their questions — “who wants to call a 1-800 number,” he asked rhetorically — which is forcing companies to rethink the way they handle customer inquiries.

In turn, those companies are looking to companies like Yext that offer technology to better answer customer queries in a digital format. It’s customer-friendly, and could save companies money as call centers are expensive. A change in behavior accelerated by the pandemic is forcing companies to adapt, driving their purchase of more digital technologies like this.

It’s proof that a transformation doesn’t have to be dramatic to have pretty strong impacts on how corporations buy and sell online.

Sprout Social also had a good go of earnings earlier this month, beating revenue growth expectations. TechCrunch chatted earlier this week with CEO Justyn Howard about his company’s results, leading to our uncovering of a neat fact. Namely that companies do not tend to raise their guidance by more than they beat in their trailing quarter, which is what Sprout did.

Our read of that fact is pretty simple: Sprout Social is managing to grow more rapidly than external parties expected. Why? Howard said that he feels a lot of momentum in his business since late Q2 to Q3 2020. That’s when the pandemic business fear started to abate, and Hot Software Summer swung into high gear.

Meanwhile, Box also reported this week and it had what we can call an encouraging quarter, with revenue up 10% YoY. CEO Aaron Levie attributed this to…you guessed it…digital transformation and the larger trends that are resulting from it.

“I think we’re just well positioned for where the market is going. If you think about work from anywhere, if you think about digital-first experiences — all of these trends really point toward companies needing a content cloud to be able to manage all of their unstructured content in a secure and seamless way, so I think we’re on the right side of some very important mega trends, and we are in a really strong position to capture those,” Levie told us.

If Box is about managing structured content, then Snowflake is all about managing unstructured content in the cloud and this ability to store and process data is really pushing other areas, particularly machine learning, which relies on copious amounts of data to build accurate models.

And regardless of your view of its guidance and how conservative it may be or not, the company’s most recent quarter was blistering. Its revenue grew from $108.8 million in its year-ago quarter ending April 30 to $228.9 million this quarter. Sure, its net loss grew, but the company swung to positive operating cash flow.

We often consider the public cloud’s growth as a proxy of sorts for aggregate digital product adoption; Snowflake is perhaps a single layer higher up on the stack. And its results also point to rabid digital uptake.

Let’s wrap with the big daddy of SaaS software, Salesforce. And speaking of blistering growth, how about a quarter ending with $5.96 billion, up 23% YoY? Just how good was that quarter? Good enough to be the best quarter in the history of the company-good.

By the way, the CRM giant, which is just short of a $25 billion run rate as of this quarter, let it be known that it believes it can reach $50 billion in revenue by the end of its fiscal 2026. And CEO Marc Benioff, who was effusive about the results in the post-report call with analysts, said that digital transformation was at the center of his company’s growth, especially as it relates to how Salesforce customers are transforming how they interact with their customers.

“Wow, I mean, it was really a position of confidence. It was feeling like there is a tremendous market that has built over the last year that I think people realize that they must be digital, but they must be digital with their customers. It’s not just digital transformation. It’s digital customer transformation. That’s where the power is I believe in the market, especially right now,” Benioff told analysts.

Every buzzword has some basis in reality, but typically the phrasing has been overused by marketers trying to sell stuff, rendering it mostly meaningless. Yet as the world accelerates its shift online, if you’re not digital or in the process of becoming digital — dare we say, digitally transforming — chances are your business is not in a position to survive and thrive for the long term.

We are seeing this play out in the pandemic and these public SaaS companies are in a position to benefit in a big way, as we saw in this week’s earning’s reports.