Salesforce Investors Watching for Activist Influence on Earnings

Salesforce Inc. is expected to post its slowest-ever quarterly revenue growth when it reports earnings Wednesday. But the main focus will be how far management is willing to go to cut costs and satisfy the demands coming from activist investors.

(Bloomberg) — Salesforce Inc. is expected to post its slowest-ever quarterly revenue growth when it reports earnings Wednesday. But the main focus will be how far management is willing to go to cut costs and satisfy the demands coming from activist investors. 

Pressure has been mounting on Salesforce Chief Executive Officer Marc Benioff to boost profits after a half-decade of fast hiring and large acquisitions. Five activist investors — Elliott Investment Management, Starboard Value, ValueAct Capital Management, Jeff Ubben’s Inclusive Capital and Dan Loeb’s Third Point — have taken stakes in the company in recent months. Fiscal fourth-quarter results will be management’s first opportunity to address investors since the emergence of these activists. 

The company’s stock has rallied 23% this year, recovering the losses incurred after co-Chief Executive Officer Bret Taylor and Slack co-founder Stewart Butterfield unexpectedly gave notice. They announced plans within a week of each other in late November and early December to leave San Francisco-based Salesforce. Activist involvement in the company has likely been the primary driver of the share gains, wrote Guggenheim Securities analyst John DiFucci.

Investors will be “laser focused on Benioff’s comments and plan outlined next week on the conference call” as the company tries to reduce costs and resuscitate growth, wrote Dan Ives of Wedbush Securities. “Street frustration is not going to be satisfied with the standard cookie-cutter conference call and view into FY24.”

For the first time, the full-year operating margin forecast will be the main attraction rather than revenue. Investors want to see how quickly the company can pare back spending and improve margins. Before the emergence of the activists, Salesforce set a 25% operating margin target for fiscal year 2026. Wells Fargo analyst Michael Turrin thinks the company could hit that target two years early. Investor pressure has likely “led to changes in Salesforce’s operating philosophy,” wrote BMO’s Keith Bachman, who also raised his margin forecast.

As part of the cost-cutting push, the company is also paring back its real estate. At least a dozen offices inherited in megadeals for Tableau and Slack will be closed, including those former companies’ onetime headquarters in Seattle and San Francisco, respectively. “We are bringing all Salesforce employees together under one roof in hub cities,” a company spokesperson said in a Feb. 13 statement about the office shutdowns.

It’s been a tumultuous few months for the software firm — it has swapped board directors, axed 8,000 workers and lost numerous top executives. That includes Taylor, who was thought to be the heir-apparent to Benioff. Many analysts expect these disruptions to weigh on revenue and employee morale in the near term.

Still, the earnings report could be an “inflection point” toward better margins and growth re-acceleration once macroeconomic and restructuring woes ease, wrote Kash Rangan, an analyst at Goldman Sachs Group Inc.

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