Activist investment firm Starboard Value now has stakes in Salesforce and Splunk, the company announced Tuesday.
The New York-based company published a presentation on its website about its position with both IT vendors and website development platform provider Wix.
“Each company represents an opportunity to own a high-quality and sticky business at an attractive valuation with the potential for significant value creation through a better balance of growth and profitability, ” according to the presentation.
The Salesforce opportunity
For Salesforce, which is working toward $50 billion in revenue by fiscal year 2026, “while growth has slowed, the company has not yet produced the margins expected from its leadership position” in customer relationship management (CRM), according to Starboard.
“Salesforce has not realized the benefits of operating leverage over the past few years, and the company has generated significantly lower incremental margins than peers” Oracle, Microsoft, Adobe, Intuit, SAP, Workday and ServiceNow, according to to Starboard.
The presentation placed Salesforce at number one in marketing campaign management, customer service applications and model-driven application platforms. This puts Salesforce at number two in analytics software, integration software, digital commerce applications and the collaboration market.
Starboard founder Jeff Smith told CNBC in a television interview that he and his company would like to see Salesforce focus more on operating margins and improving value for shareholders.
“Salesforce is a great company, really a great company,” Smith told CNBC. “Salesforce is embedded in the fabric of so many companies and has become so important to the way they operate and conduct business.”
But, he continued: “They don’t come down so much on the bottom line. They’re not as focused on operating margins as we think, maybe, they should be.”
Earlier this month, it was announced that Salesforce was laying off about 90 workers. Earlier this year, Salesforce lowered its guidance for the amount of revenue it expects to see for the fiscal year, which ends on January 31, 2023. This is the second guidance cut this year from Salesforce.
The Splunk opportunity
While Starboard believes Splunk can generate more value for stockholders on its own, the company could also sell for a lot of money, according to the presentation.
“While we believe there is significant value that can be created from improving growth and profitability, we also believe that Splunk is a highly strategic asset that can be attractive to many different strategic and financial consumers,” according to the presentation.
Starboard’s presentation touted new Splunk CEO Gary Steele’s success with Proofpoint, pointing out that “Proofpoint sold at an all-time high share price to Thoma Bravo” last year.
“If the new management team is able to improve operational performance, we believe Splunk could benefit from an increase in value,” according to Starboard’s presentation. “If management can successfully execute a margin improvement plan, we believe Splunk shareholders will be significantly rewarded.”
The Wall Street Journal it is reported that Starboard Value has a stake in Splunk of less than 5%. In February, the news outlet reported that Cisco Systems made a $20 billion acquisition bid for Splunk.
Starboard blamed “lack of execution and poor forecasting” for Splunk’s disappointing quarterly earnings reports dating back to 2020. The move to an annual invoicing business model also “masked the real business power.”
The company called Splunk number one in log management and number one in security information and event management (SIEM).
Activist tech investors
Starboard’s interest in Splunk comes on the heels of other activist investor campaigns with the vendor. Hellman & Friedman took a 7.5% stake and recently gained a board seat. Silver Lake made a $1 billion convertible investment in June 2021.
Meanwhile, in June, Jana Partners disclosed a 5% stake in New Relic and took a board seat.
Starboard Value previously made waves at Symantec in 2018, eventually reaching an agreement with new board members. The following year, Broadcom acquired Symantec for $11 billion.
The company also invested in Mellanox, which Nvidia bought in 2020 for $6.9 billion.
Last year, Starboard Value’s special purpose acquisition company (SPAC) helped data center colocation provider Cyxtera Technologies go public in a $3.4 billion acquisition.
A version of this story was first published on Computing’s sister site CRN.