Investors Watch Salesforce Earnings For Activist Influence

It is expected that Salesforce Inc. will post its slowest-ever quarter-over-quarter revenue growth when the company reports its earnings on Wednesday. However, it is likely that the main focus of the debate will be how far management is willing to go to cut costs and satisfy activist investors' demands regarding price reductions. 

‍

Marc Benioff, the Salesforce Chief Executive Officer, has been under increasing pressure to increase profits following a half-decade of rapid hiring and large acquisitions by the company. A number of activist investors have taken stakes in the company in recent months, including Elliott Investment Management, Starboard Value, ValueAct Capital Management, Jeff Ubben's Inclusive Capital, and Dan Loeb's Third Point. Since the emergence of these activists in the past couple of months, management will be able to address investors for the first time during its fiscal fourth-quarter results. 

‍

During the first half of this year, Slack's stock has rallied 23%, recovering the losses that were incurred when co-CEO Bret Taylor and co-founder Stewart Butterfield unexpectedly resigned from the company. The two announced in late November and early December that they were leaving Salesforce, a San Francisco-based company, within a week of each other. DiFucci wrote in a report published by Guggenheim Securities that the primary reason for the gains in the shares has been the involvement of activists in the company.

‍

Investors will be looking at Benioff's comments and plan outlined on a conference call next week with a laser focus as the company tries to reduce costs and resuscitate growth by reducing costs, wrote Dan Ives of Wedbush Securities in a recent note. “We are not going to be able to satisfy the frustrations of the street with a standard cookie-cutter conference call and view of the financial year 24."

‍

This will be the first time that the full-year operating margin forecast will be the main focus of the conference rather than the revenue forecast. Investing in a company is all about seeing how quickly the company is able to reduce spending and improve its margins. There was a target set by Salesforce for the operating margin for the fiscal year 2026 of 25% before the emergence of the activists. Michael Turrin, an analyst at Wells Fargo Securities, believes that the company may be able to reach that goal two years ahead of schedule. The pressure from investors has likely led to a change in Salesforce's operating philosophy, according to Keith Bachman at BMO, who also raised his forecast for the company's margins.

‍

In order to cut costs at the company, the company is also reducing the amount of real estate it occupies. Tableau and Slack will be closing at least a dozen offices they inherited as part of their megadeals, including the companies' once-presidential offices in Seattle and San Francisco, respectively, which were inherited as part of those mega deals. As part of the planned office closures, Salesforce employees will be gathered in hub cities under one roof, according to a company spokesperson in a statement released on Feb. 13.

‍

During the past few months, the software firm has been in the midst of a tumultuous period. It has changed board directors, axed 8,000 employees, and lost several top executives to retirement. The heir-apparent of Benioff was thought to be Taylor, who was the heir-apparent to Benioff. It is expected that these disruptions will have a negative impact on revenue and employee morale in the near future, according to many analysts.

‍

Goldman Sachs Group Inc. analyst Kash Rangan wrote that the earnings report might be an "inflection point" toward better margins and growth acceleration once macroeconomic and restructuring woes ease.

‍