Technology
Wednesday, September 21st, 2022 7:21 pm EDT
Salesforce stock rose almost 3% in extended trading on Wednesday after the enterprise software maker announced a new long-range profitability goal 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 to respond to higher prices this year, after becoming more glamorous during the Covid pandemic, when organizations boosted their use of programs employees could use without being in offices.
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Management teams at cloud companies have sought to recapture interest by emphasizing cost-savings plans and pull forward their timelines for profitability. Salesforce itself said it would be more careful in adding talent.
The company went further on Thursday, as Amy Weaver, Salesforce’s finance chief, revealed new targets for the 2026 fiscal year at the company’s investor day, taking place in San Francisco during its Dreamforce conference. The company is aiming for a 25% adjusted operating margin, including future acquisitions, she said. That compares with the 20% target Salesforce announced one year ago for its 2023 fiscal year. The adjusted operating margin was 19.9% in the quarter that ended July 31.
Salesforce indicated that it intends to push adjusted sales and marketing spending as a percentage of revenue below 35% by 2026 through increasing self-serve efforts, alliances with partners, and productivity improvements for salespeople. In marketing, the idea is to draw on proprietary marketing channels. Sales and marketing on a GAAP basis took up over 44% as a percentage of revenue in the July quarter.
Additionally, Salesforce is keen to manage general and administrative spending, in part by evaluating real estate assets for a hybrid workplace.
Weaver reiterated the $50 billion revenue target for fiscal 2026 that it announced one year ago, but she said that the figure now takes into account a $2 billion headwind from exchange rates since last year’s investor day.
Shares of Salesforce reached 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.
WATCH: Salesforce’s Taylor on the company’s commitment to profitability and returning cash to shareholders
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