Despite rising interest rates beginning to rattle the economy and stock market, we’ve found that the mood on customer demand at Dreamforce — Salesforce’s big annual development conference in San Francisco dubbed — has been generally positive.
Execs at Salesforce, specifically, struck an upbeat tone.
“CFOs have a lot of power right now,” Salesforce co-CEO Bret Taylor told Yahoo Finance Live. “People are focused not just on top-line growth, like they were for the past few years, but also bottom-line growth. … It’s obviously a more measured environment, but I think technology is the solution.”
Salesforce put its money where its mouth is at the conference, committing to a 25% operating margin by calendar year 2025. It’s the first time Salesforce has committed to a public operating margin target — if hit, it would mark a notable increase from 2022’s goal of 20.4%.
The company also sees sales hitting $50 billion by 2025, compared to Wall Street estimates for this year of $31 billion.
All of this caught the attention of Goldman Sachs software analyst Kash Ranga, who was on the ground at Dreamforce meeting with Salesforce customers.
Rangan is subsequently out on Thursday with one of the more bullish calls on Salesforce on Wall Street:
Where Rangan’s head is at on Salesforce overall:
“The co-CEO structure under Marc Benioff and Bret Taylor appears to be working well and the management team overall seems to be unified in its strategy to balance growth and profitability. Looking beyond fiscal year 2026, we see operating margin potential of 35-40%. The broader take away is that digital transformation continues to be top of mind for customers at its annual Dreamforce user conference, which has more than 40K paid attendees. Newly-promoted President and COO Brian Millham made a reassuring point that the pipeline of potential business continues to look very promising.”
Rangan added that “Salesforce continues to invest in organic innovation exemplified by the release of Genie, a real-time customer data platform. Overall, Salesforce ranks high in Goldman Sachs’ framework for investing in software.”
Inside Salesforce upbeat long-term guidance:
“As Salesforce leans into several operating levers in their model to index towards this profitability, we see this potentially re-rating the company’s valuation multiple higher longer term, as was the case with Microsoft, Adobe, AutoDesk and Intuit. We were encouraged by CFO Amy Weaver’s commitment to this target, even if the company decides to participate in M&A. We point to Salesforce’s ability to show margin expansion over the last twelve months, despite the integration of Slack, and its reiteration of its FY23 margin targets despite top-line headwinds as proof points to its ability to execute on these long-term targets.”
The Goldman analyst added that “while the path to this level of profitability is not likely to be linear given necessary go-to-market and product investments, we are reassured by the cadence this guide suggests off of its fiscal year 2023 outlook for 20.4% margins.”
Watch the performance of acquired assets Slack, Mulesoft, and Tableau:
“We highlight Salesforce being able to drive innovation and growth through its acquired assets. We see more potential for growth to be driven by Slack, which was acquired at a 27x revenue multiple ($1.1 billion) and today has grown 1.4x to ~$1.5 bilion in revenues. We believe this is still in the early stages of product adoption and innovation within the Salesforce ecosystem, with key new features announced just this week (more below). Similarly, previous acquisitions such as ExactTarget and Demandware underpin our conviction in the growth potential from acquisitions.”
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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