(Bloomberg) — Salesforce Inc. surged by the most in almost three years after raising its forecast for profit margins and doubling stock buyback plans amid pressure from activist investors.
(Bloomberg) — Salesforce Inc. surged by the most in almost three years after raising its forecast for profit margins and doubling stock buyback plans amid pressure from activist investors.
Operating margin — which has become a very closely watched metric for Salesforce — will be about 27% in the fiscal 2024 that runs through next January, the software giant said in a statement Wednesday. That trounced an average analyst estimate of 22.4% in part due to recent jobs cuts. Before the emergence of activists including Elliott Capital Management, Salesforce had been aiming for margins to hit 25% by fiscal 2026.
On a call with investors late Wednesday, Salesforce executives made clear that profitability is now front and center for the cloud applications pioneer, which spent years more focused on growth. At least five activist investors, including Elliott and Starboard Value, are pushing the company to cut costs following a half-decade of aggressive hiring and large acquisitions.
“It’s a new day at Salesforce,” Chief Financial Officer Amy Weaver said in the statement. “I am excited for the opportunity in front of us as we continue to drive profitable growth.”
Shares rose as much as 16% to $193.91 in New York trading, the largest intraday gain since August 2020.
On a conference call, she added that the operating margin should be at least 30% by the first quarter of fiscal year 2025. The company also said it was raising its share repurchase program to $20 billion.
Elliott said in a statement Wednesday that it had been in “close, substantive dialogue” with Salesforce leading up to the earnings report.
“These steps are consistent with our recommendations, and we believe they will help restore value at Salesforce,” the firm said. But more work remains, Elliott said. “Salesforce needs a sustainable leadership plan and a board that demonstrates it can provide accountability through proper oversight.”
Read more: Salesforce CEO Praises Activists After Earnings-Fueled Rally
It’s been a tumultuous few months for Salesforce: The company has swapped board directors, axed 8,000 workers and lost numerous top executives. In addition, many corporations have begun to scrutinize their spending on cloud applications and infrastructure in recent quarters. Analysts expect these disruptions to cause dramatic revenue deceleration.
Much of the savings came from the restructuring announced in January, Executive Vice President Mike Spencer, who handles investor relations, said in an interview.
The stock had already climbed 26% this year through the close, more than double the rally of the tech-heavy Nasdaq 100. Activist involvement in the company has likely been the primary driver of the recent share gains, Guggenheim Securities analyst John DiFucci said in a note ahead of earnings.
In the fiscal fourth quarter, revenue increased 14% to $8.38 billion, beating projections of 9.2% growth. Excluding some items, profit was $1.68 a share, compared with analysts’ average estimate of $1.36.
The remaining performance obligation — or contracted sales that have yet to close, which is a measure of near-term demand — grew 11% to $48.6 billion in the quarter. Sales for the fiscal first quarter, which ends April 30, will grow to about $8.2 billion and adjusted profit will be at least $1.60 a share — both ahead of estimates.
But the company continues to see longer sales cycles, weighing on revenue in recent quarters, and isn’t reiterating its previous target for $50 billion in revenue by fiscal 2026, Weaver said.
Earlier Wednesday, news broke that Elliott Capital Management had nominated directors to Salesforce’s board. In addition to Elliott — which has a multibillion dollar stake — Starboard, ValueAct, Jeff Ubben’s Inclusive Capital Partners and Dan Loeb’s Third Point have disclosed positions in the company in recent months. In January, Salesforce appointed three new directors, including ValueAct Chief Executive Officer Mason Morfit.
The company also is steering clear of additional acquisitions. On the earnings call, CEO Marc Benioff said Salesforce had “fully disbanded” its M&A committee. Instead, its board has formed a “business transformation committee” and brought Spencer into the leadership team, Benioff said. “Improving profitability is our highest priority.”
Bloomberg Intelligence analyst Anurag Rana said the committee’s dismantling supports the view that management is focused on profit. “We’re confident the company is now on a different path compared with a few years ago,” Rana wrote in a note.
Wall Street analysts have said that the company may ultimately have to make more job cuts or spin off big acquisitions in search of greater profit. When asked whether the company is considering spinoffs, Spencer said, “Not at this point.”
He touted the integration of acquired divisions Tableau, Mulesoft and Slack — the last of which Lidiane Jones recently took over as CEO. Salesforce bought the workplace chatting business in 2021.
“We’re pretty happy with the portfolio of what we have now and we’re hyper-focused on the integration of our assets,” Spencer said.
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