Salesforce and Billionaire Marc Benioff Face a Defining Moment

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Monday, February 27, 2023

Today’s newsletter is by Brian Sozzi, Yahoo Finance‘s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with the Yahoo Finance App.

Salesforce is facing a defining moment in its 24-year history.

Growth is slowing. Analysts are worried fundamentals will get worse before they get better as companies curtail tech spending amid a sluggish global economy. A fresh round of layoffs at Salesforce have just been uncorked….at a company that has only known aggressive hiring. Employees are questioning leadership at the tech titan.

Co-CEO Bret Taylor is no longer co-CEO of Salesforce — instead he’s off to launch an AI startup the serial entrepreneur tells me. Slack founder Stewart Butterfield, who stayed on when the company was acquired by Salesforce, is still founder…but no longer with the parent company.

Salesforce co-founder Marc Benioff is back at the CEO helm, after attempting again to pullback from day to day duties (by delegating to a co-CEO) and focus more on his vast philanthropic ventures.

To top it all off the company is staring down the barrel of five sharks in the field of activist money management: Elliott Management, Starboard Value, Inclusive Capital, ValueAct, and Third Point.

This is an unprecedented activist versus public company battle, pros have told Yahoo Finance. How it ends is wildly unclear, but is a situation just as important as Wednesday’s earnings report.

“While the involvement of five activist investors has likely been the primary driver of CRM stock of late, quarterly results probably still matter (though not as much as usual), and how those results are delivered may be more relevant than ever,” said Guggenheim analyst John DiFucci.

Below, Yahoo Finance breaks down this complicated situation at large-cap tech name Salesforce. The drama is high, and it could all be coming down to one final epic conclusion.

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What Yahoo Finance Is Watching: Salesforce Earnings

What sources tell us is top of mind on the Street:

• How quickly are sales deteriorating inside of the broader tech pullback?

• What does the pipeline of future business look like?

• Does Marc Benioff acknowledge the activist situation?

• Are more layoffs needed?

• Consensus is that Salesforce warns on sales and earnings for 2023 – but how bad is it?

The Vibe Among Wall Street Analysts

Analysts are generally expecting a muted tone from Salesforce on earnings day.

“For Benioff and Salesforce the actual quarter and FY24 take a back seat to the fluid activist situation which is happening at Salesforce with the Street’s patience wearing thin after a head scratcher Slack deal and slowing growth/underachieving margins front and center.” -Wedbush analyst Dan Ives

“Key to the Q4 call is gaining clarity on the extent to which management will turn the dial up on non-GAAP operating margins, GAAP profitability, and any future share repurchases with the emergence of activist involvement in the stock.” -Morgan Stanley analyst Keith Weiss

What the Activists Want From Salesforce

Sources tell Yahoo Finance that Starboard Value — led by veteran activist investor and Papa John’s chairman Jeff Smith — has been disappointed in Salesforce’s expense management, but isn’t advocating for a sale of Slack. Other activists involved in the situation are keen to see a Slack sale even at a low price as a show of faith by management they will improve margins, sources say.

Overall, we are told the activists are entrenched and want clear changes from Salesforce leadership.

Key thing the activist pool wants:

Like we said, this earnings report is a defining moment in the history of Salesforce.

What to Watch Today

Economy

• Durable Goods Orders, January Preliminary (-3.8% expected, 5.6% during prior month)

• Durables Excluding Transportation, January Preliminary (0.1% expected, -0.2% during prior month);

• Non-defense Capital Goods Orders Excluding Aircraft, January Preliminary (0.0% expected, -0.1% during prior month)

• Non-defense Capital Goods Shipments Excluding Aircraft, January Preliminary (-0.6% during prior month)

• Pending Home Sales, month-over-month, January (1.0% expected, 2.5% during prior month)

• Pending Home Sales NSA, year-over-year, January (-34.3% during prior month)

• Dallas Fed Manufacturing Activity, February (-9.10 expected, -8.4 during prior month)

Earnings

• Groupon (GRPN), LendingTree (TREE), Li Auto (LI), Lordstown Motors (RIDE), Oak Street Health (OSH), Occidental Petroleum (OXY), Workday (WDAY), Zoom Video (ZM)

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