An “Oscar-worthy quarter”, one equity analyst quipped on Salesforce’s Thursday afternoon earnings call. The praise did not just apply to the software company’s strong results, given the pressure from multiple activist investors. Salesforce’s founder and chief executive, Marc Benioff, has received terrible reviews of late for his Hollywood friends and constant globetrotting.
Salesforce did well in the fourth quarter. Its revenue growth of 14 per cent and an adjusted operating margin of 23 per cent offered an almost perfect combination of growth and profits.
On Thursday, its share price soared more than a tenth. The dissident shareholders circling Salesforce, including the likes of Elliott Management, knew that changes at Salesforce just required more willpower from Benioff. Do not expect their demands to soften.
Last year, Salesforce said it hoped to achieve a 27 per cent operating margin by its fiscal 2026 year. Now the company says it can hit that figure in the current year and should reach 30 per cent eventually. Salesforce’s finance chief explained that simply required slashing real estate spending, as well as a 10 per cent reduction in its workforce.
Software companies have become tantalising targets for hedge funds and private equity firms. Steady profits and cash flow have allowed Benioff to spend freely on fun for him and his employees alike. Plus, Salesforce had made some pricey if questionable acquisitions on companies such as Slack, Tableau Software, and Mulesoft. The company said it would disband its mergers and acquisitions committee, signalling further austerity.
Wall Street’s vulture investors understand that these types of excess costs can be slashed without harming the underlying business. They have forced discipline on Benioff and he has been forced to go along at the right time.
The speed of his pivoting looks like a showstopping performance. Yet old habits die hard. Keeping this act going will be the tricky part.
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