‘We’re going to be a huge player in the new AI world’

Salesforce CEO Marc Benioff joins Yahoo Finance’s Brian Sozzi to discuss company earnings, innovation in AI, and the outlook for Salesforce.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN Marc Benioff, Salesforce CEO making changes in his customer management business. Some of these changes, such the dissolution and reorganization of his mergers & acquisitions team, were clearly intended for appeasing activist investors. Brian Sozzi from Yahoo Finance sat down and had a conversation with Benioff.

MARC BENIOFF It’s wonderful to be back with you, and I am so happy. We were there at Dreamforce. You were with us when we established our profitability framework. We hoped to exceed 25% margins by fiscal year 26. We did it today. The hyperspace button was pressed, and everything was accelerated by two years. This quarter, we achieved a remarkable 29.2% operating margin and 17% revenue growth. This quarter was amazing. It was a great quarter. I am proud of my team and all that they did to make it happen.

BRIAN SOZZI It was also a brand new day for Salesforce. Talk us through it.

MARC BENIOFF I believe it is connected to what we are talking about. We have been focusing on increasing profitability and margins. You can now see the North Star of more than 30% indicating how we are progressing as a company. It’s more than being the best CRM in the world. This is obviously a huge advantage for the company in sales, service, marketing, commerce and in all other areas that our customers need to connect with them.

To also achieve all financial metrics. We aim to be the largest and most profitable software company, as well as the one with the highest cash flow. As you can see, we generated more than 7.1 million in cash flow last year. These numbers are amazing. We are committed to even greater results.

BRIAN SOZZI Marc, I was speaking to two analysts during the earnings call. You called out a 30% operating margin for the first quarter of 2024. How can you achieve that? Is it necessary to reduce headcount? Is the economy going to rebound? How do you get to that number?

MARC BENIOFF You can see the direction. Over the last five year, our operating margin has increased each year. However, you will also notice that we were able to hit the hyperspace button, exactly as you mentioned. You will see that we gained four points this year. This is not four basis points. It was four operating margin. Next year, we will add or the current fiscal year, fiscal year 24, 4 and 1/2 more points. We are moving in an amazing direction. We’re moving fast into the 30s.

BRIAN SOZZI Let me know if you would like to clarify a few things I mentioned during the call. Let’s get started with you and the Bain team. Do you want to increase efficiency? What is the reason you tapped them? What are you doing with them?

MARC BENIOFF They should come in, or knock on my door. I should also just put my foot on the ground because they are actually in our building. That’s how I know Manny, Bain’s CEO, is there. He is always there on the elevator. I told him that we were trying and that our company is now a scaled software firm, the number three software company worldwide. We are striving to improve financial performance metrics.

And he only has a playbook. He just takes it out and says, Here we go. One, two, three. Four. Five. Many of his ideas are already being implemented. There are many more things to do. We’re only just starting. I could not be more proud of where we are at the moment, but I couldn’t be more excited about what lies ahead. Bain and Manny are going to play a significant role in Salesforce’s future.

BRIAN SOZZI What direction do you see Salesforce heading?

MARC BENIOFF Look, we are now moving into an incredible new AI world in which everything and everyone is connected. We’ll need to create a new technology infrastructure in all of our customers to enable that to happen. Ford is an excellent example. Ford. I also own the Ford Lightning. These electric cars are fully autonomous. The Lightning is an electrical truck. It’s very cool.

All the data from these cars, including telemetry data, is being sent to our Data Cloud. The Data Cloud then ingests them. The artificial intelligence then communicates back to me when I reach different thresholds in product performance through the automation. Through my Data Cloud, I receive texts, emails, offers, and I’m being sold. This connectivity between Salesforce core clouds and our new world is what we are experiencing. This is truly exciting to me.

This quarter saw amazing traction. It was our fastest-growing cloud, and not just at Ford. They did incredible things with the Data Cloud at companies like Boston Scientific. F1, the F1 guys who race in sports, meet 99% of their customers. Data Cloud connects them automatically. I’m excited about this because we are going to be a big player in the new AI world.

BRIAN SOZZI Marc is a layperson who may not be as tech-savvy as you. We can talk about Einstein GPT. Does that mean it will be in competition with Microsoft ChatGPT. Tell us.

MARC BENIOFF Salesforce’s core platform for artificial intelligence, Einstein, is Einstein. As you know, we are leaders in artificial Intelligence, CRM and Commerce. We’ve achieved amazing results for our clients, making sure that their customers online shop from us with an artificial intelligence framework that has been developed for a decade.

The next generation in generative AI means that the AI will be able perform even more tasks for you. It can also code for your benefit. If you’re a service executive or sales executive, it will write letters for your company. It can create content. AI can do many things today that were impossible 10 years ago. And this is where AI will really help our customers to be more productive, perform better, and ultimately, be more profitable.

BRIAN SOZZI Marc, I pray it doesn’t begin creating finance content. This gig is my responsibility. I cannot take this stuff. All right, so we have Einstein GPT. Second thing that picked up to me on this earnings call– and I almost couldn’t believe I heard it– you disbanded your M&A committee. Holy cow. This is a huge signal, I believe, you told investors. Let’s just go through it.

MARC BENIOFF We’ve made some amazing acquisitions. MuleSoft and Tableau both had strong quarters during the fourth quarter. It’s a great product, and I know that you use it at Yahoo quite aggressively. Slack will be a major part of the AI Future because it is for so many customers both a critical data set and a user interface into AI.

They are all Slack-first companies and use Slack to communicate with their AI system, just like many of the new startups in AI that are popping up in the Bay Area. This is something we will definitely be demonstrating. When we come in, the AI to Slack is already developed. Because that was how they built their entire company, it’s already done.

This is the place where the world is going. This is a new world. Our acquisitions have prepared us very well for this world. At the same time, for us to deliver these much higher levels of profitability and performance that we’re committed to, new levels of prioritization of our core organic products like Data Cloud, Brian, that’s going to mean that we’re going to have to slow down and mitigate what we’ve been doing with M&A.

And so we disbanded our M&A committee to do that. To focus on profitability, we created a new committee for business transformation. It’s evident in the results for this quarter with a 29.2% operating margin. We delivered 8.4 billion in revenue. Brian, which software companies have you ever reported on that delivered quarters quite like this?

BRIAN SOZZI Fair point, Marc. Marc is right.

MARC BENIOFF It’s true, I believe so. It’s impossible to predict what the future will bring. This is obvious. What I can tell you is that we are focused on our profitability and core performance. These financial metrics are important to us. We delivered a fantastic fourth quarter. We are going to deliver an amazing fiscal year in ’24.

We now expect to generate nearly $35 billion in revenue with a 27% operating profit. Salesforce is focused on this right now. However, we just achieved a record low in customer loss because of our customer success. All of these are working well together and we’re very happy with them.