Salesforce Co-CEO on M&A: ‘We’re committed to profitable growth’

Salesforce Co-CEO Bret Taylor joins Yahoo Finance Live’s Brian Sozzi from the Dreamforce 2022 conference in San Francisco, CA, to discuss new targets for the 2026 fiscal year, the company’s focus, driving profit growth, and the outlook for acquisitions.

Video transcript

BRAD SMITH: Also, we've got to talk about shares of Salesforce, CRM. We're seeing those move higher by about 2 and 1/2% this morning. Ticker symbol CRM there. This is following the release of its new long range profitability goal, releasing new targets for the 2026 fiscal year. Our very own Brian Sozzi had the chance to sit down with the Salesforce CEO, co-CEO, Bret Taylor yesterday on the company's focus in driving profits. Let's take a listen.

BRET TAYLOR: Our acquisitions have helped shaped who we are as a company today. So M&A was a part of our past. M&A will definitely be part of our future. But as you said, our focus right now is profitable growth. We know that as we scale, we got into $31 billion in revenue, 20.4% in operating margins. We want to expand our operating margins, expand our cash flow over time through discipline, and understand that there's leverage in our business. And I don't think the two are at odds with one another.

But we're very committed to profitable growth. We're really committed to bottom line performance as well. I'm also really proud of how important acquisitions have been to our company. And we want to do so in a shareholder-friendly way and a disciplined way.

BRAD SMITH: And so, some of the efforts around this are certainly going to mean that marketing and some of their budgets to really acquire these new customers, that that is really going to be in focus as well. Sales and marketing particularly, that was about 44%. It took up roughly 44% of their revenue or accounted for roughly 44% of their revenue in this most recent quarter.

And I think going forward from here, we've seen companies already start to pull back more broadly on their marketing spend. It's a question of how long they're comfortable actually determining the levels of spend for some of the customer acquisition, as compared to previous years, knowing that in this interim period of time, that's just going to be an effort for cost restructuring or cost savings, if you will, that they're looking-- that not just Salesforce, but many brands are looking across to try and increase or at least maintain some of their margins, too.

JULIE HYMAN: Yeah, it's an interesting strategy to say, look out a little bit further because right now, things-- I mean, and I don't know that they explicitly said right now, it's not so great. But if they're focusing on the longer term, maybe that's the implication. I'm looking at some of the analyst views on all of this morning, and they're pretty, by and large, positive here.

There was one commentary from RBC Capital Markets that they are encouraged by the margin target, but they note that the expansion path will not be linear and could, indeed, be backend weighted, which, again, seems to emphasize what you're talking about, that in the mid-term-- in the medium term, with clients pulling back on spend, that to reach that margin target, maybe it's going to take-- maybe a lot of that growth is going to come closer to when they're trying to achieve it.

BRAD SMITH: Right, and does this mean that they kind of are strategically looking at the acquisitions that they make and really just combing through with a fine tooth comb at this point? Because that also would mean that they have to make some type of package-- put some type of package together, whether that be in a combination of cash and stock if they were to go after a viable player.

Of course, there was a ton of scrutiny. And Adobe acquiring Figma is in the rest of the ERP landscape or the corporate cloud application landscape. Is there going to be that high level of scrutiny from investors on any dealmaking that gets done in this period of time if you're saying that you're going to pull back in these other parts of the business, too, and the cash that's going out the door?

JULIE HYMAN: Yeah, good questions all.