Salesforce Inc. Chief Executive Officer Marc Benioff likes to start his earnings calls with investors on a light note. He’s opened in the past by talking about the “magic” of Covid safety protocols, the crisp air of San Francisco as Christmas approaches, attending the World Economic Forum in Davos or doing interviews with CNBC’s Jim Cramer.
(Bloomberg) — Salesforce Inc. Chief Executive Officer Marc Benioff likes to start his earnings calls with investors on a light note. He’s opened in the past by talking about the “magic” of Covid safety protocols, the crisp air of San Francisco as Christmas approaches, attending the World Economic Forum in Davos or doing interviews with CNBC’s Jim Cramer.
Instead on Wednesday afternoon, he got right to business: “Our goal is to make Salesforce the largest and most profitable software company in the world and that is what we are doing,” he said in one of the first sentences of his prepared remarks. He followed with new steps to please investors, such as disbanding its M&A committee which effectively ends the company’s controversial acquisition strategy, doubling stock buybacks and forming a new “Business Transformation” group.
With five activist investors breathing down its neck, all Salesforce wants to talk about now is profit. Management used the word more times during last night’s earnings call than in any other in company history, according to a Bloomberg analysis of transcripts. It was as much as the previous nine quarters of earnings calls combined.
All eyes were on Benioff to see how he would react to the unprecedented wave of activist pressure. By most accounts, he stepped up. Salesforce trounced analysts’ expectations on its profitability outlook and rode a wave of Wall Street price target upgrades Thursday morning, seeing its steepest share rally in years.
Guggenheim Analyst John DiFucci said he was surprised that management is finally focusing on margins. “We had resigned to the conclusion that unwillingness to trim fat, especially in the S&M org, was a cultural decision, and something that wouldn’t change as long as Marc Benioff was at the helm,” DiFucci wrote in a note to investors.
But in recent months the company has attracted the scrutiny of activist investors, who that generally agitate for cost-cutting or management changes. It has also experienced a bout of instability, having swapped board directors, axed 8,000 workers, lost numerous top executives including heir-apparent Bret Taylor, and seen the slowest growth in its history. It’s been a “very intense 90 days since our last earnings call,” Chief Financial Officer Amy Weaver said.
Elliott Investment Management, with a multibillion stake in the company, recommended in early February some of the changes management announced last night, including disbanding the M&A committee and forming the new operational committee, according to a person familiar with the matter. Some of its recommendations weren’t accepted, including further board director changes and succession planning, the person said.
In a statement after earnings, Elliott said the steps management took “will help restore value at Salesforce,” but more work remains. On Wednesday morning, news broke that Elliott had nominated directors to Salesforce’s board, suggesting the possibility of a proxy fight. In other companies, Elliott has pushed for CEOs to step down, though it has thus far spoken positively of Benioff.
Benioff had nothing but good things to say about the activists, saying in an interview with Bloomberg TV that he’s enjoyed listening to them and getting ideas. He spoke most warmly of ValueAct Holdings LP’s Mason Morfit, who he appointed to Salesforce’s board of directors in late January, a few days after Elliott’s stake became known. Benioff also suggested activists should be happy with the stock rally after earnings. “They are making a lot of money today — I think that’s what they like,” Benioff said.
In addition to the activists, Benioff said he’s been learning from his old boss and rival Oracle Corp. co-founder Larry Ellison. Benioff said Ellison has “spent a lot of time with me, giving me the Oracle playbook,” and even sent him a congratulatory text after the positive earnings were released. Starboard Value, the first major activist to take a stake in Salesforce, cited Oracle as company with model margins in its October announcement presentation.
Part of what allowed Salesforce to so quickly boost profit was firing 8,000 workers earlier in the year. When asked during the Bloomberg TV interview, Benioff didn’t respond to questions on whether the company was done with headcount reductions for the year.
With just a few minutes left on the earnings call, Weaver took a moment to eulogize the ex-colleagues — “it’s easy to talk about that very clinically as if headcount just represents dollars and not real human beings,” she said before quickly steering back to Salesforce’s new favorite topic. “But these actions weren’t our first steps and there are going to be plenty more actions that we take to increase our operating margin going forward.”
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