Signage on a Saleforce office building in San Francisco, California, U.S., on Tuesday, Feb. 23, 2021.
David Paul Morris | Bloomberg | Getty Images
Salesforce (CRM) on Friday confirmed a shakeup to its board of directors, welcome news for a Club holding facing slowing growth, a leadership turnover, layoffs and intensifying pressure from activist investors.
The Salesforce West office building in San Francisco, California, on Wednesday, Jan. 25, 2023.
Marlena Sloss | Bloomberg | Getty Images
Company: Salesforce (CRM)
Business: Salesforce is a global leader in customer relationship management ("CRM") technology that brings companies and their customers together. It was founded in 1999 and is a pioneer in the cloud software space. It started as a tool to help sales teams to increase their productivity while also improving the end customer experience. Over the last 20 years, they have expanded into other areas to help companies connect with and better serve customers, including Sales Cloud, Marketing & Commerce Cloud, Platform & Other, Integration Cloud, Analytics Cloud and Service Cloud.
Stock Market Value: $164.5B ($164.52 per share)
Activist: ValueAct Capital
Percentage Ownership: n/a
Average Cost: n/a
Activist Commentary: ValueAct has been a premier corporate governance investor for over 20 years. The firm's principals are generally on the boards of half of ValueAct's core portfolio positions and have had 55 public company board seats over 22 years. ValueAct has previously commenced activist campaigns at 25 information technology companies and has had an average return of 45.98% versus 18.70% for the S&P 500 over the same period.
What's Happening
On Jan. 27, Salesforce announced that it is appointing three new directors to the board, one of whom is Mason Morfit, CEO and CIO of ValueAct Capital.
Behind the Scenes
This is a very interesting activist situation. Four major activists in the same company at once: ValueAct, Starboard Value, Inclusive Capital and Elliott Management. Marc Benioff needs a CRM just to keep track of the activists in his stock. Adding Morfit to the board of Salesforce makes a ton of sense regardless of the activist environment.
ValueAct has extensive experience in technology companies like Salesforce, most notably Microsoft and Adobe. Morfit was on the board of Microsoft from March 2014 through the end of 2017 as the company transformed into a cloud-based enterprise software business. During that transition, the board set cloud targets for management and tied them to a unique executive compensation plan that paid out at stretch goals for the cloud. Microsoft blew away those cloud targets and annual cloud revenue went from approximately $1 billion in 2013 to over $100 billion today. The company's market value went from approximately $250 billion to $1.8 trillion. At Adobe, ValueAct took a board seat as the company transformed from a package software provider to a subscription cloud service. Adobe went from a $14 billion market cap when ValueAct invested to $168 billion today. ValueAct also presently has positions in Insight Enterprises (NSIT), one of the largest software distribution companies where ValueAct partner Alex Baum is on the board, and Trend Micro, a cloud cybersecurity company. When you get a ValueAct partner on the board, you get the whole ValueAct team and the collective experience of the 55 public company board seats they have taken to work on strategy, succession, compensation, financial planning and analysis, M&A, capital allocation and cost reduction.
Salesforce's transformation has the potential to be as notable as many of ValueAct's other successful investments, even if the playbook is customized. Salesforce has a leading market position and has historically had strong annual top line growth. But, as Starboard noted in its presentation on the company, Salesforce has underperformed peers, the technology sector and broader market over the past three years and is valued significantly below the peer median multiple on forward revenue (3.8x vs. 6.7x for peers) and free cash flow expectations (18.7x vs. 22x for peers). This valuation discount can be largely attributed to Salesforce's subpar mix of profitability and growth, which has come down significantly from its historic levels. As shown in Starboard's detailed presentation, Salesforce peers are operating at a "rule of 50" – the average revenue growth plus adjusted operating margins of peers equals 49.4. Salesforce currently has a revenue growth rate of 17.0% and 20.4% operating margins, which brings it to 37.4 combined. Morfit has experience helping management increase both growth and margins from a board level, and both can be improved at Salesforce.
The looming question is whether he will initially be doing this with an activist cloud hanging over the company's head in the form of a proxy fight by one of the other activists involved. We have followed every activist campaign over the past 17 years. We strongly believe that appointing Morfit to the board certainly decreases the chance of another activist being successful in a proxy fight, but to be clear, that is not why the company appointed him. Based on ValueAct's history and philosophy, the firm would not take a board seat unless it had a large investment, and the firm would not make a large investment until it evaluated the company for many months. It likely had been engaging with Salesforce management for several months, and this appointment may have happened just as a threatened proxy fight was reported. Moreover, there is no way a company the size of Salesforce would appoint an activist to their board without previously having deep discussions with him or for the primary purpose of heading off a potential proxy fight.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.
New York CNN —
Software giant Salesforce (CRM), one of the 30 stocks in the venerable Dow Jones Industrial Average, had a miserable 2022. Now the company is under attack from a big hedge fund that wants to shake things up at the company that owns Slack.
Elliott Management, a firm that has taken activist stakes in Pinterest (PINS), PayPal (PYPL), Twitter (before Elon Musk acquired it) and former CNN owner AT&T (T) over the past few years, is now targeting Salesforce. Shares of Salesforce rose more than 4% on the news in early trading Monday.
A source close to the situation said that Elliott Management took a multi-billion dollar stake in Salesforce. Elliott would not divulge the size of its position in Salesforce to CNN Business, but the company did confirm its investment.
“Salesforce is one of the preeminent software companies in the world, and having followed the company for nearly two decades we have developed a deep respect for [Salesforce CEO] Marc Benioff and what he has built,” said Elliott managing partner Jesse Cohn in a statement to CNN Business.
“We look forward to working constructively with Salesforce to realize the value befitting a company of its stature,” Cohn added.
Salesforce was not immediately available for comment.
Shares of Salesforce plunged nearly 50% last year due to slowing growth and management turmoil. Co-CEO Bret Taylor stepped down, leaving Salesforce chairman and co-founder Benioff as sole CEO.
The company also recently announced plans to lay off around 10% of its staff due to the weakness in the tech sector.
Salesforce, like many other tech firms that are now cutting jobs, hired aggressively during the early stages of the Covid-19 pandemic, as the work from home boom led to a surge in demand for cloud software that made it easier for companies to manage their businesses remotely.
Benioff was even named CEO of the Year by CNN Business for 2020.
However, Salesforce spent a LOT of money over the past few years on acquisitions, scooping up workforce productivity tool Slack as well as software firms Tableau and MuleSoft for nearly $50 billion. Investors are now wondering if the deals were worth it.
Salesforce also has to contend with tough competition from the likes of Oracle (ORCL), German software giant SAP (SAP) and Microsoft (MSFT), which has a top Slack rival in Teams.
The Microsoft Dynamics 365 product suite contains a comprehensive set of tools built to perform practically every aspect of business management. Based on Microsoft Azure, a cloud-computing ecosystem―although an on-premise solution is also available, if preferred―Dynamics 365 features 11 core “modules,” which cover everything from sales, customer service, automation and marketing to talent management, finance and operation, retail and AI. What sets Microsoft Dynamics 365 apart from the competition is the full integration with Microsoft’s extensive list of software including the classics we all know and love, like OneDrive, Excel and Outlook.
Microsoft Dynamics 365 offers three main sales plans and two main customer service plans designed to cover a wide variety of business needs. On top of that, Microsoft Dynamics 365 has a whole host of add-ons for businesses with specific needs. Most of Microsoft Dynamics 365 plans are discounted to $20 per user, per month, if the user already has one Dynamics 365 product.
The Microsoft Dynamics 365 product tiers start with the Sales Professional at $65 per user, per month, billed annually. The Professional plan offers an extensive suite of sales executing services, full reporting and analysis with exports to Excel and some amount of customization.
The Sales Enterprise, at $95 per user, per month, adds knowledge management and gamification as well as a limited amount of contextual insights and AI.
The Sales Premium plan, at $135 per user, per month, offers the full package when it comes to sales acceleration, fully customizable solutions and more in-depth contextual insights and conversational intelligence.
For the customer service side of your business, Microsoft Dynamics 365 offers a Professional plan at $50 per user, per month, which includes an unlimited number of named users, extensive case and knowledge management and includes service for mobile.
The Customer Service Enterprise plan, at $95 per user/per month adds more advanced capabilities like a unified service desk, embedded AI intelligence which gives context-driven suggestions and analytical reports.
All the Microsoft Dynamics 365 sales and customer service products are fully integrated with all Microsoft products, such as Outlook, Excel, OneNote and more:
- Sales Professional:$65 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers core sales force automation and Microsoft 365 automation
- Sales Enterprise:$95 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers industry-leading sales force automation with contextual insights and advanced customization options
- Sales Premium:$135 per user, per month, billed annually, adds prebuilt, customizable intelligence solutions designed for your businesses sellers and managers
- Customer Service Professional:$50 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers core customer service capabilities
- Customer Service Enterprise:$95 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers more advanced customer service capabilities
By any measure, Salesforce CEO Marc Benioff has been a successful executive. He helped build Salesforce from the ground up, starting in an apartment in San Francisco in 1999 and eventually erecting Salesforce Tower, the tallest building in the city. He took the idea of running software in the cloud and grew it into the de facto way to deliver software at a time when most companies offered software in boxes or on-prem seat licenses.
That he helped transform the way software is bought and sold is undeniable. But he’s now under intense scrutiny: Not one but two activist investors have recently taken large positions in Salesforce, meaning his decisions could be challenged on everything from acquisitions to how budgets are allocated.
For starters, Starboard Value announced in October that it was taking a sizable (but undisclosed) stake in Salesforce. Then this week, Elliott Management announced it was taking a multibillion-dollar position in the CRM leader.
Both firms usually have strong opinions about what they believe needs fixing at a company — and they typically get what they want. In this case, they likely want a more profitable, less costly Salesforce. That could involve cutting executive salaries, reducing overhead costs, laying off additional people and selling unprofitable pieces of the organization, among other things. The activist investors will probably also seek board seats.
Salesforce has already started making cuts, announcing it was laying off 10% of the workforce earlier this month. It plans to slash real estate costs, too, while reducing overall operating costs and increasing efficiency, but it might not be enough in the eyes of the new investors.
When you look at the moves Salesforce has made over the last five years, there is certainly room for criticism around the massive sums spent on acquisitions and how successfully acquired assets have been integrated and allocated. It’s possible that Elliott and Starboard were watching from afar, waiting for the company to weaken enough to question some of those decisions.
With Salesforce’s stock price down 29% over the last year and growth slowing, perhaps these firms saw the moment and made their moves. What will it mean for Salesforce and Benioff going forward? Let’s explore further.
When activist investors come calling, they typically make a list of desired changes and push for board seats to ensure those changes are put in place.
But this does not necessarily have to take an immediate hostile tone. A CEO who has been through an activist fight told me the goal at the beginning is to find common ground rather than assume a combative position with the activists.
“It’s not exactly about defense. That’s what the industry calls it, but it’s much more about understanding what your shareholders are pushing for and why are they pushing for these things. And are they right? And do you align on the time frame in which they want a certain set of things versus maybe the vision the company has over the long run?” said the executive, who requested anonymity to speak candidly to TechCrunch on background.
It’s very much a political exercise, and Benioff will have to read the pulse of other large investors and see how this all aligns. “I think that the really important blocking and tackling of this type of process is you have to be extremely close to your top 20 to 30 to 50 shareholders, and you have to understand what’s top of mind for them,” the CEO said.
All of this information will factor into Benioff’s strategy. If there are a lot of shareholders in agreement with the activists, then he’ll have to lean into their agenda more, but if the activists’ viewpoints differ from other shareholders, then he’ll have room to push back.
“So this is a very interesting kind of dance because it’s really a kind of shareholder democracy to some extent,” the executive said.
All that said, Salesforce is likely going to have to make some concessions.
Activist investor Elliott Management, which recently took a multi-billion dollar position in Salesforce (CRM), is looking for a major overhaul of the company's board, a person familiar with the matter tells Yahoo Finance.
The source said that Elliott may put forth numerous candidates to join the Salesforce board ahead of the nominating window opening on Feb. 12, adding that Elliott is focused on nominating high quality candidates with diversity in mind.
Elliott could be eyeing the removal of long-tenured board members that have worked closely with Salesforce Co-Founder Marc Benioff to build and grow the company — these include Craig Conway (director since 2005), Alan Hassenfeld (director since 2003) and Sanford Robertson (director since 2003).
Salesforce declined to comment to Yahoo Finance on this story.
Earlier on Thursday, Bloomberg reported that Salesforce was looking to nominate several new members to its board amid the pressure from Elliott, notably former Carnival Corp. CEO Arnold Donald.
"Salesforce is one of the preeminent software companies in the world, and having followed the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built," Jesse Cohn, Elliott's big-name portfolio manager, said in a statement to Yahoo Finance. "We look forward to working constructively with Salesforce to realize the value befitting a company of its stature."
Elliott joins fellow noted activist investor and Starboard CEO Jeff Smith as having built a position in Salesforce, with Starboard's position being disclosed in October. Activist Jeff Ubben at Inclusive Capital is also reportedly in Salesforce shares.
A source familiar with Starboard's thinking told Yahoo Finance that Salesforce has significantly more room to Improve margins — if it wants to get serious about doing so. One way could be to divest accurate acquisitions such as Slack, pros have told Yahoo Finance.
Salesforce finds itself on defense with investors arguably for the first time as a public company.
The cloud-based software company is in the process of laying off some 8,000 people amid a drive to bolster lagging profit margins the activists are up in arms about following high-profile deals for Slack, Tableau, and Mulesoft. The company is also executing select real estate exits and office space reductions.
"I’ve been thinking a lot about how we came to this moment," Salesforce co-founder and CEO Marc Benioff said in a letter to employees on the layoffs. "As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that."
The company estimates it will incur $1.4 billion to $2.1 billion in charges related to the actions.
Salesforce has committed to a 25% operating margin by calendar year 2025. If hit, it would mark a notable increase from 2022's goal of 20.4%.
Analysts have generally welcomed the trio of activists to Salesforce in a bid to work the stock higher. But the mood on the Street is that any asset sales would be unwise.
"We also feel that it makes little sense for Salesforce to jump to a divestiture strategy at this stage, and that doing so poses several risks, namely: potential for managerial distraction; overpaying is human, selling for scrap is…not what we advise; future growth could be irreparably compromised," said Sarah Hindlian-Bowler, Macquarie’s head of technology research – Americas.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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I've been looking for a driver who is qualified, reader. I'm Diamond Naga Siu, and I'm a little rusty at driving after taking public transportation for so long. Driving at night is especially nerve-racking, because I keep getting blinded by the lights.
It's happening much more frequently, and I thought my eyesight was for sure getting worse (it is). But the real culprit is more complex: light hues, misaligned headlights, and other vehicle quirks. My colleague Madison Hall illuminates the problem here.
Before we drive off into the night, let's jump into today's tech.
If this was forwarded to you, sign up here. get Insider's app here.
1. Salesforce performance pressure is on. Employees told Insider that the cloud company is about to drop new performance metrics for engineers. It's also trying to lower the headcount. Some salespeople had to choose between a "Prompt Exit Package" severance option or a 30-day performance improvement plan.
This is all part of a sprint to cut 10% of the workforce after going on a two-year hiring spree. Plus, multiple investors are believed to be pressuring Salesforce to cut additional costs to become more profitable.
More on the heightened tension at Salesforce here.
In other news:
2. Tech layoffs tell one story. Company headcount tells another. These six charts show how tech giants like Meta and Google have still grown, despite layoffs. Check them out here.
3. A woman doesn't want to prosecute her husband who is accused of purposely driving their family off a cliff. He is suspected of driving off a 250-foot cliff with his wife and two children inside a Tesla. The California doctor faces three attempted murder charges. More on the situation.
4. Microsoft really wants you to use Bing and ChatGPT. The company is throwing it back to the 90s. It's pushing people to set Bing as their default search engine. And it's trying to trade access to its augmented search engine for market share. Here's a breakdown of its desperation.
5. Hundreds of influencers revealed their rates for sponsored posts. New data revealed that the average rate for TikTok fell from $3,108 in 2021 to $2,947 a year later. Meanwhile, the costs of Instagram sponsored posts are rising. Get more insights on sponsored post rates.
6. The danger of putting computer chips in your brain. Elon Musk's neurotech startup has been working toward putting chips in people's brains since 2016. Other startups have been hurry to do so, too. But experts warn there are real dangers and unique ethical pitfalls. Dive into them here.
7. Leaked Amazon all-hands recording reveals CEO pep talk. On Tuesday, Andy Jassy urged employees to band together to get through this challenging time. He encouraged them to "redefine" the company and laid out how they can be successful. Get the full meeting breakdown.
8. Walmart forces employees to relocate or bounce. The retailer is cracking down on remote work. It closed tech hubs in California, Texas, and Oregon, and gave impacted employees two options: relocate or take severance. More on the employment ultimatum.
Odds and ends:
9. Beep Beep: Road trip with this couple in an EV. Axios reporter Joann Muller joined her husband on a 1,500-mile road trip in a Kia EV6. They didn't use heat — and stopped 12 times due to "range anxiety." Come along for the ride here.
10. Stop doing these things at Chinese takeout restaurants. Su-Jit Lin grew up working in her parents' American Chinese restaurant. She witnessed her parents facing racism and aggression while running their business. Here are nine things she wishes customers knew.
What we're watching today:
Curated by Diamond Naga Siu in San Diego. (Feedback or tips? Email dsiu@insider.com or tweet @diamondnagasiu) Edited by Dave Smith (tweet @redletterdave) in Toronto and Nathan Rennolds (tweet @ncrennolds) in London.
Read the original article on Business Insider
Salesforce's (CRM -1.75%) shares closed at an all-time high of $309.96 during the peak of the tech stock rally in November 2021. At the time, the leader of the cloud-based CRM (customer relationship management) services market seemed like a solid long-term investment.
But as of this writing, Salesforce's stock trades at about $155. It was cut in half as investors fretted over its cooling growth and macroeconomic challenges. Rising interest rates exacerbated that sell-off by broadly crushing the tech sector.
Could Salesforce's stock drop even further as the bear market drags on? Or could it recover as it streamlines its business and the macro environment improves? Let's weigh the bear and bull cases to find out.
Image source: Getty Images.
What the bears will tell you about Salesforce
Salesforce expects its revenue and adjusted earnings per share (EPS) to rise 17% and 3%, respectively, in fiscal 2023 (which ends on Jan. 30). In fiscal 2024, analysts expect its revenue and earnings to grow 11% and 17%, respectively.
That slowdown isn't disastrous, but the bears will point out that Salesforce is growing more slowly than comparable cloud-based software companies. ServiceNow (NOW -3.24%) -- which streamlines digital workflows with its cloud-based services -- is expected to grow its revenues by 23% in 2022 and 22% in 2023. Monday.com (MNDY -3.98%) -- which enables companies to develop their own custom apps -- is expected to grow its revenues by 66% in 2022 and 30% in 2023.
Part of that slowdown can be attributed to the accurate macro headwinds, which caused large companies to rein in their software spending. However, Salesforce still faces stiff competition from Oracle, SAP, and Microsoft (MSFT -1.56%) in the CRM market. During Microsoft's latest conference call, CEO Satya Nadella said Dynamics 365 -- which grew its revenue 29% year over year on a constant currency basis during the quarter -- was still "taking share" from its CRM competitors.
As Salesforce's growth cools off, it's reeling from an ongoing loss of top executives -- including its co-CEO Bret Taylor, chief revenue officer Gavin Patterson, chief marketing officer Stephanie Buscemi, Slack CEO Stewart Butterfield, and Tableau CEO Mark Nelson. All those high-profile departures, along with Salesforce's accurate decision to lay off 10% of its workforce, suggest it's struggling with internal turmoil and operating inefficiencies.
There's also a stunning lack of insider confidence in Salesforce's stock. Over the past 12 months, its insiders sold 53 times as many shares as they bought. They also haven't purchased a single share over the past three months.
What the bulls will tell you about Salesforce
The bulls will remind investors that Salesforce still controlled 22.9% of the global CRM market in the first half of 2022. Its four closest rivals -- Microsoft, Oracle, SAP, and Adobe -- held a combined share of 19.2%. Therefore, Salesforce might face competitive headwinds, but its brand should still remain synonymous with cloud-based CRM services.
Moreover, Salesforce still expects its adjusted operating margin to expand 200 basis points to 20.7% in fiscal 2023, and eventually surpass 25% by fiscal 2026. That expansion suggests it won't lose its pricing power anytime soon.
The bulls will note that even though Salesforce is growing more slowly than ServiceNow or Monday.com, it's fundamentally cheaper at less than five times its fiscal 2024 sales. ServiceNow and Monday.com trade at 10 and eight times their sales estimates for 2023, respectively. Salesforce trades at just 20 times its free cash flow (FCF) estimate of $7.3 billion for fiscal 2024. ServiceNow trades at 32 times its estimated FCF for 2023, while Monday.com's FCF is still negative.
Those low valuations suggest that Salesforce's stock could bounce back quickly after it weathers the near-term macro headwinds, streamlines its core businesses, and gets its house in order. That's probably why two high-profile activist investors -- Starboard Value and Elliott Management -- have recently accumulated multi-billion-dollar stakes in Salesforce.
Last but not least, Salesforce still expects to generate more than $50 billion in annual revenue in fiscal 2026 -- which implies its top line will still grow at a compound annual growth rate (CAGR) of at least 17% from fiscal 2023 to 2026.
Which argument makes more sense?
It's tempting to kick Salesforce while it's down, but the right time to be bearish was at the apex of the growth stock rally in late 2021. Now that its stock has been cut in half and trades at attractive valuations again, its downside potential could be limited as the company trims its fat, resets its business, and attracts the attention of aggressive activist investors. Based on these facts, I believe the bullish case for Salesforce makes a lot more sense than the bearish one.
Leo Sun has positions in Adobe and Salesforce. The Motley Fool has positions in and recommends Adobe, Microsoft, Monday.com, Salesforce, and ServiceNow. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
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