(Bloomberg) — Shares of Salesforce Inc. jumped after news that activist investor Starboard Value had taken a stake in the company.
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Jeff Smith, chief executive officer of the activist investor, announced the position at a conference call on Tuesday. Shares gained as much as 6.8% when the market opened in New York, the biggest gain since July 27.
Smith said Salesforce has had issues translating growth into profitability, and as a result has fallen behind its peers. Salesforce is a great business that just needs to do a better job of focusing on improving margins, he said.
“At Salesforce we don’t think it’s an issue if they can do it. It’s a question of how focused the company is on the issue,” Smith said at the 13DMonitor Active-Passive Investor Summit in New York on Tuesday.
Starboard shared its management views on the matter, and Smith said he believes the new leadership team is committed to addressing the issue.
“This is good news. We don’t bang our heads against the wall. We just need them to be really competitive and try to be the best at it,” he said.
Starboard said Salesforce’s new financial targets unveiled at its investor day earlier this year were a step in the right direction but less ambitious than the company’s rivals, including ServiceNow Inc. and Workday. That suggests Salesforce should be able to achieve significantly higher margins because of its size and lower growth rate, Smith said.
A Salesforce spokesperson said the company is committed to acting in the best interests of its shareholders and is focused on continuing to execute on its strategy outlined at last month’s Dreamforce event.
San Francisco-based Salesforce in September reaffirmed its target of $50 billion in revenue by fiscal year 2026 — nearly double current annual sales — while adding a new profit margin target of 25%. Co-Chief Executive Officer Marc Benioff said at the time that the company will continue to make acquisitions as it continues to integrate past purchases.
In June, 36.8% of voting shareholders supported an activist proposal to oust Benioff as board chair. The proposal was initiated by a conservative group that took issue with his public support for causes such as gun control and reproductive health care access, but drew support from Institutional Shareholder Services, which said even the company had no specific governance issue, it can be difficult to counterbalance a board led by a longtime CEO and founder. Shareholders also rejected a bid for a racial equity audit of the company’s workforce.
“It means a lot to us,” Bloomberg Intelligence analyst Anurag Rana said of the Starboard stake. “Salesforce’s valuation has been killed since they bought Slack because investors are upset that Benioff keeps promising margin expansion and then goes out and buys another company. However, I think the company has found religion and is focused on improving profitability.
Shares of Salesforce are down about 40% this year, compared with a 30% decline in the NASDAQ Composite Index.
In addition to Salesforce, Smith confirmed that Starboard has a stake in Splunk Inc. He said his firm believes the software company has the ability to improve its margins as well and that it is “a highly strategic asset that could be attractive to a variety of strategic and financial buyers. Smith also said the company saw opportunities in Wix.com Ltd., a provider of online tools to build websites.
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