Salesforce aims to achieve 25% operating margin in 2026

Brett Taylor, Co-CEO of Salesforce.com Inc. , right, and Mark Benioff, co-CEO of Salesforce.com Inc. , rabbit ears during a keynote speech at the 2022 Dreamforce Conference in San Francisco, California, on Tuesday, September 20, 2022.

Marlina Sloss | Bloomberg | Getty Images

Salesforce stock rose nearly 3% in extended trading Wednesday after the enterprise software maker announced a new long-term profitability target that demonstrated the company’s intent to operate more efficiently.

Several cloud software companies, including Salesforce, have become less persuasive to investors as interest rates have risen to respond to price hikes this year, having become more flashy during the Covid pandemic, when organizations ramped up their use of software that employees can use without being in the office.

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Management teams in cloud companies have sought to regain interest by emphasizing cost-saving plans and accelerating their timelines to achieve profitability. Salesforce itself said it would be more careful in adding talent.

The company went even further on Thursday, as Salesforce chief financial officer Amy Weaver revealed new goals for fiscal year 2026 at the company’s Investor Day, being held in San Francisco during the Dreamforce conference. She said the company aims to adjust operating margin by 25%, including future acquisitions. That compares with Salesforce’s goal of 20% announced one year ago for fiscal year 2023. Adjusted operating margin was 19.9% ​​in the quarter ended July 31.

Salesforce has indicated that it intends to drive adjusted sales and marketing spending as a percentage of revenue to less than 35% by 2026 through increased self-service efforts, alliances with partners, and improved productivity for salespeople. In marketing, the idea is to rely on private marketing channels. GAAP-based sales and marketing accounted for more than 44% as a percentage of revenue in the July quarter.

Additionally, Salesforce is keen on managing general and administrative spending, in part by valuing the real estate assets of the mixed workplace.

Weaver reiterated the $50 billion revenue target for fiscal 2026 she announced a year ago, but said the figure now takes into account the $2 billion headwind from exchange rates since Investor Day last year.

Salesforce shares hit a 52-week low on Wednesday. Weaver said the company has begun buybacks of its shares as part of its first share buyback program.

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