Salesforce targets 25% operating margin in 2026

Yahoo Finance’s Brian Sozzi joins the Live show from the Dreamforce 2022 conference in San Francisco, CA, to discuss Salesforce’s new long-range profitability goal.

Video transcript

BRAD SMITH: With all of this in mind, let's switch gears and check in on some of the shares of companies that we've been tracking out in the West Coast, such as Salesforce, ticker symbol CRM. Shares are actually holding onto gains here this morning. This is after the company announced a new long range profitability goal for a higher adjusted operating margin in the 2026 fiscal year.

For more on this, let's go on over to the West Coast. Live from the Dreamforce conference, Yahoo Finance's Brian Sozzi. Sozzi, great to see you here, and you've been out there all week. What's taking place? What's the pulse? What's the chatter?

BRIAN SOZZI: Brad, Julie, what's cracking? Top of the morning to you both. Post Fed day, good to see you guys. But look, it's interesting to see this. This is day two of Dreamforce for us here at Yahoo Finance. I went out. I've been out walking in the streets a little bit, getting some dinner. The restaurants are packed. This event is absolutely crowded, more than 40,000 people in attendance.

And it's just been weird to see the market reaction after that Fed because at least at this Salesforce conference, you're still seeing and feeling a lot of optimism on consumer demand for various Salesforce products. Now, you had that big investor day with Salesforce yesterday, first time publicly committing to an operating margin out in public of 25% by calendar year 2025.

Also reaffirming a very big sales goal of $50 billion. That is a lot of sales growth that Salesforce is expecting over the next few years, and of course, comes against this backdrop of what we heard from Fed chief Jerome Powell yesterday, warning about a potential recession, warning about higher interest rates, but at least at this conference and this vibe in San Francisco, you're just not getting that feeling that we are in a recession, and things are slowing down dramatically.

Now, Salesforce shares one of the hottest tickers, most visited tickers on the Yahoo Finance platform. The stock got initial boost on this guidance. And I'm not surprised. It's good guidance. The commentary has been pretty favorable, by and large. We've talked to a lot of customers here of Salesforce. They're not pulling back on their demand.

So it's just been very interesting, Julie and Brad, just to hear, I think, this disconnect on what's happening in the real economy, at least in places like San Francisco, and what's happening in markets and the commentary and various data we're seeing from the economy.

JULIE HYMAN: I mean, it's a huge hype event. It would be difficult to hear-- like, I would be surprised if you said, everyone's coming out here with gloom and doom. At that type of event, I don't know if you usually get that kind of commentary. But I am curious what kind of commentary you're hearing specifically around the Fed decision and press conference that we got yesterday, if there is any trepidation about this increase in rates that we're seeing and that we're going to continue to see.

BRIAN SOZZI: Julie, I hear you. It is a celebration of Salesforce. Yes, you're contained in this environment. But when you talk to the people actually paying for this service, you're not-- at least me, I'm not seeing white in their eyes. They're not saying, I'm no longer going to subscribe to this service and pull back. I'm not canceling my Slack or MuleSoft. So I understand the backdrop, but still, that has been somewhat encouraging. I'm just looking for some bright spots here on what has been a challenging time for the markets and the Fed.

But to your point, the Fed commentary this morning here has been tough. You look at Goldman Sachs. They're already now raising the possibility of a rate hike in sometime in middle of next year. I would say the mood on the ground here, guys, is that Fed rate hikes are more of a thing in our environment, not really top of mind for people per se at this event. But again, of course, it's something, your continuing magic. The cost of doing business is getting higher, and it's likely to go even higher, just based on what we heard from the Fed yesterday.

JULIE HYMAN: And then finally, I just want to mention you talked to Bret Taylor, the CEO of Salesforce. You're going to talk to Marc Benioff, too.

BRIAN SOZZI: Yeah, today, big conversations here for the Yahoo Finance team. We're going to be talking at length with Marc Benioff. So we'll talk about that guidance and what he has planned for the next decade at Salesforce. Also be talking to Slack founder Stewart Butterfield, friend of our show. Looking forward to catching up with him.

But Bret Taylor really, I think, echoed what we've been hearing and what I just said on the demand environment. Things are solid. A little bit more measured, Bret acknowledged, but still a solid demand environment and I think was captured in their guidance.

And then secondarily, also the M&A outlook. I think you're seeing a Salesforce trying to just further integrate its acquisitions, focus on better profitability, better operating margins, and maybe perhaps, you know what, pull the trigger on a big acquisition two to three years down the line. Whatever the case, acquisitions are still in the future for this company. Maybe not tomorrow, though.

JULIE HYMAN: Gotcha. Look forward to all of that, Brian Sozzi. Appreciate your coverage from out there. Appreciate you taking some time out to talk to little old us here on the East Coast.