Salesforce's activist investors: Who are they, and what do they want?

As it gears up to report earnings today after the bell, Salesforce (CRM) has no less than five activists circling it, turning up the heat on the software firm's founder and CEO Marc Benioff to cut expenses, boost earnings and even execute a better succession plan.

Why? Well, for one thing, the cloud-based software company's stock is down about 21% over the last twelve months (up around 22% year-to-date).

"It's been a long conversation around what Salesforce margins could be," said Wells Fargo analyst Michael Turrin. "Now, it's become more pronounced over the last three to five years because we've seen other businesses achieve different margin structures. Though Salesforce has transitioned management team members over time and they've shown signs of becoming a mature company, the intensity of the [cost-cutting] conversation has certainly picked up."

Last quarter, Salesforce said that its Q3 GAAP operating margin was about 5.9%, while competitor Oracle's (ORCL) latest GAAP operating margin was 25%. The company also laid off about 10% of its staff in January, a sea change after years of talking about Salesforce as "a family."

Here's what Wall Street's expecting to see from Salesforce's key metrics today, as compiled by Bloomberg:

Q4 2023 revenue: $8 billion expected versus $7.33 billion actual in Q4 2022

Q4 2023 adjusted earnings per share (EPS): $1.37 expected versus $0.84 in Q4 2022

Q4 2023 adjusted operating margin: 22.4% expected versus 15% in Q4 2022

Even if these numbers hold – and the non-GAAP numbers look even dicier – it's going to be a tough day for Salesforce: they're ultimately anticipated to report their slowest-ever quarterly revenue growth.

Who are the so-called activists?

So far, the list – and it always seems to grow – is Third Point, ValueAct, Inclusive Capital, Elliott Management, and Starboard Value. The latest addition: "anti-woke" Strive Asset Management.

Said Jeff Gramm, Bandera Partners portfolio manager: "Though we likely won't see these activists working together expressly, but implicitly dynamics will be set up...certainly a good cop, bad cop dynamic could develop.” Gramm noted hat ValueAct is less aggressive and less likely to launch a proxy fight than, say, Starboard and Third Point.

The bottom line: this is a giant pain in the neck for Benioff at best, existential at worst.

Here's a quick look at each firm circling Salesforce—and what they may want:

Third Point

Third Point, led by billionaire investor Dan Loeb, has picked a number of high-profile fights over the years notably Disney (DIS), Campbell Soup (CPB), and Shell (SHEL). In 2020, Loeb took a stake in Intel (INTC), launching a campaign that would lead to Pat Gelsinger’s rise to the chipmaker’s CEO role – and the ousting of Bob Swan. The size of Third Point’s stake and the full scale of its intentions at Salesforce haven't been confirmed, but Loeb's capable of launching a fearsome proxy fight. In other words: he's not in the stock for a free ticket to the company's Dreamforce events.

Inclusive Capital

There’s a link between ValueAct and Inclusive – Jeff Ubben founded Inclusive after his tenure at ValueAct, which he co-founded in 2000. Ubben launched Inclusive Capital in 2020, and he’s been busy. In 2021, Ubben was appointed to the board of ExxonMobil (XOM) and has been building up a massive holding in industrial wood pellet-maker Enviva (EVA). Inclusive, which focuses more on social investing as compared to ValueAct, owns 1.6 million shares of Salesforce, SEC filings show. They're likely to be more passive than, say, Third Point.

ValueAct

ValueAct is something of an oddity in the activist landscape as it doesn’t frequently go public with its investing plans. However, the firm recently revealed a stake in Spotify (SPOT) and that combined with ValueAct’s involvement in Salesforce suggests, it’s currently taking aim at macro-economic-rattled tech giants. The firm also has experience with big names in tech, previously notching a 2013 win at Microsoft (MSFT) and previously holding a stake in Adobe (ADBE).

In ValueAct’s case, though the details of the firm’s Salesforce stake remain unknown, Salesforce has yielded somewhat already. On Jan. 27, the company added ValueAct CEO and CIO Mason Morfit to its board.

Elliott Management

Elliott often goes for the jugular. The firm, which has been among the most prolific activist investors in recent years, is fronted by Jesse Cohn and Paul Singer. It will often seek board representation. Elliott’s previous tech targets have included PayPal (PYPL), AT&T (T), Dell (DELL), and Twitter. In 2022, Elliott struck a deal that landed senior Elliott portfolio manager Marc Steinberg on Pinterest’s (PINS) board.

The details of Elliott’s stake and intentions in Salesforce are fuzzy, but sources tell Yahoo Finance the stake is a “multi-billion” investment. Additionally, those sources added that Elliott would like to see way more focus by Salesforce CEO Benioff on succession planning and expense management. On March 1, Elliott reportedly nominated a slate of directors to Salesforce's board.

Starboard Value

Starboard Value’s involvement in Salesforce traces back to October, when a presentation on the firm’s site revealed that it had taken a “significant stake” in Salesforce. Sources tell Yahoo Finance Starboard has been disappointed in Salesforce’s expense management, but isn’t advocating for a sale of workplace messaging app Slack, which In 2021 Salesforce purchased for a mind-numbing $27.7 billion acquisition. Company watchers—and that would probably include our activists — have questioned whether Salesforce truly integrated Slack to date and whether they should sell it all together.

Notably, this isn’t Jeff Smith-led Starboard’s first run at a SaaS business. In 2019, Starboard targeted Box (BOX), taking a stake as high as 8.8%. Starboard ultimately lost the subsequent, hard-fought proxy battle at Box, which is fundamentally a much smaller company than Salesforce. (Box’s Q3 2023 revenue was $250 million, while Salesforce’s was $7.84 billion.) Could Smith try again?

Strive Asset Management

Strive was co-founded by "anti-woke" presidential candidate Vivek Ramaswamy. The firm, on Feb. 27, wrote a letter to Benioff, demanding that he pull back on Salesforce's social messaging, instead focusing on profit. Penned by Strive President Anson Frericks, the letter itself includes sections like:

"So-called 'stakeholder capitalism' is nothing more than an ethos that allows its CEO to anoint himself a 'hero' who is 'sav[ing] the world' as he rubs elbows with fellow billionaires in Davos, while leaving Salesforce shareholders holding the bag. It chooses politics over profits, race baiting over revenue, and virtue signaling over value, harming the millions of Americans who have invested in Salesforce."

Among Strive's demands: that Salesforce remove "all references to stakeholder capitalism."

So, what's next?

That hinges in part on how Benioff responds (and how good Salesforce's earnings look), but it goes beyond that. Elliott and other activists can't do much without the support of Salesforce's largest investors such as Vanguard, BlackRock, State Street, Fidelity, T. Rowe Price, Geode, Morgan Stanley, Fisher, UBS, and Wellington.

"As much stock as these activists might own, it's really not material – they're really going to have to convince people," said Gramm. "Ultimately, this typically boils down to how disgusted shareholders are and for these big guys to support an activist they have to be really, really upset."

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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