Salesforce aims for 25% operating margin in 2026
Salesforce.com Inc. Co-CEO Bret Taylor, right, and Salesforce.com Inc. Co-CEO Marc Benioff wear bunny ears during a keynote speech at the 2022 Dreamforce conference in San Francisco, Calif., Tuesday, On September 20, 2022.
Marlena Sloss Bloomberg | Getty Images
Salesforce stock rose nearly 3% in extended trading Wednesday after the enterprise software maker announced a new long-range profit target that showed the company’s determination to operate more efficiently.
Several cloud software companies, including Salesforce, have become less compelling to investors as interest rates have risen in response to higher prices this year, after becoming more glamorous during the Covid pandemic, when companies ramped up their use of programs employees can use out of the office.
Management teams at cloud companies have tried to regain interest by emphasizing cost-saving plans and pushing up their timelines for profitability. Salesforce itself has said it will be more cautious with Medha Yoga.
The company went further Thursday, as Salesforce CFO Amy Weaver revealed new goals for fiscal 2026 at the company’s investor day during its Dreamforce conference in San Francisco. The company is aiming for a 25% adjusted operating margin, including future acquisitions, he said. This compares with Salesforce’s announced 20% target a year ago For its 2023 fiscal year. Adjusted operating margin for the quarter ended July 31 was 19.9%.
Salesforce has indicated that it wants to push adjusted sales and marketing expenses below 35% as a percentage of revenue by 2026, through increased self-service efforts, alliances with partners and productivity improvements for salespeople. In marketing, the concept draws on proprietary marketing channels. Sales and marketing accounted for more than 44% on a GAAP basis as a percentage of revenue in the July quarter.
In addition, Salesforce is interested in managing general and administrative expenses by evaluating real estate assets for a hybrid workplace.
Weaver restored the $50 billion revenue target for fiscal 2026 that it announced a year ago, but said that figure now takes into account a $2 billion headwind from exchange rates from last year’s investor day.
Shares of Salesforce hit a 52-week low on Wednesday. The company has begun buying back its own shares as part of its first share-repurchase program, Weaver said.
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