Activist investor Starboard Value announced this morning that it is taking a “significant stake” in Salesforce, per CNBC. A presentation on Starboard’s website confirmed the company’s interest in Salesforce, as well as Wix and Splunk.
The presentation looks at the company’s financial situation and concludes that it can provide investors with a better return. On the positive side, Starboard likes the company’s refreshed executive team with Bret Taylor as co-CEO.
It also likes Salesforce’s ambitious $50 billion revenue target for fiscal year 2026, but Starboard was less pleased with Salesforce’s combined growth and operating margin target of 42%. It said the average of Salesforce’s peers is more than 50%, and the implication is that it wants to see Salesforce closer to — or ahead of — its peer group.
Plus, Starboard sees a company with greater scale than peer cloud companies like Workday and ServiceNow, its comparison companies. Starboard says in the investor presentation that “despite expectations to grow slower than [these] peers, [it] is only targeting operating margins that are in-line below those of its smaller peers.”
“On a growth + margin basis, Salesforce significantly lags these companies and the peer set,” the company wrote in its presentation.
It believes that if Salesforce “generates incremental margins in line with peer levels as it grows to $50 billion in FY2026 revenue, margins will significantly exceed the Investor Day target.” And that will increase free cash flow per share over the next few years as it approaches the $50 billion revenue mark.
Salesforce gave a relatively quiet reaction to the news of Starboard’s move: “We are committed to acting in the best interests of our shareholders and are committed to continuing to execute on our strategy outlined at Dreamforce,” a company spokesperson.
This isn’t Starboard’s first attempt to acquire an enterprise SaaS company. In 2019, it became one of Box’s largest shareholders when it bought a 7.5% stake, which will grow to 8.8% over time. A proxy battle eventually ensues, with Box ultimately winning. It’s important to note that Salesforce is a bigger company than Box, reporting $7.7 billion in revenue in its most recent earnings report in August, while Box reported $224 million.
It’s unclear at this point if Starboard intends to simply try and influence from the margins, or ultimately end up on board, as it did with Box.
Holger Mueller, an analyst at Constellation Research cautioned that this is not necessarily a negative. “Never a dull moment at Salesforce. We will have to see what Starboard wants. It does not always have to be a bad thing, as we saw with Pershing at ADP. [It ended up] creating more focus on innovation and product,” he said.
Salesforce stock rose more than 6% in trading this morning on the news.