Salesforce has seen an impressive 98% stock jump in 2023, spurred by strategic adjustments following pressure from activist investors like Starboard Value. The software giant’s increased focus on improving its operating margins, which had been a point of concern for Starboard, has paid off. Now, Starboard is calling for even more efficiency, suggesting that Salesforce still has room to boost profitability and growth.
Starboard CEO Jeff Smith praised Salesforce's progress during an interview at the 13D Monitor Active-Passive Investor Summit, noting that the company has made strides in aligning with the "Rule of 40" — a key performance measure in the software industry that balances revenue growth with profit margin. Smith believes that Salesforce can continue to push higher, perhaps even reaching the "Rule of 50" by the 2028 fiscal year. This would require both accelerated revenue growth and further expansion of the company’s adjusted operating margin.
For years, Salesforce prioritized rapid growth, but Starboard's involvement has shifted the company’s focus towards profitability, leading to significant changes, including workforce reductions and an increased emphasis on efficiency. These moves have positioned Salesforce to not only maintain its leadership in customer relationship management software but also to close the profitability gap with major competitors like Microsoft, Oracle, and Adobe.
Salesforce CEO Marc Benioff has acknowledged the constructive relationship with activist investors, welcoming dialogue and collaboration that has helped shape the company’s strategy. Although most of the activist investors have since moved on, Starboard continues to hold a stake and remains optimistic about Salesforce’s future trajectory.
With upcoming innovations like the Agentforce technology, unveiled at Dreamforce 2023, Salesforce could be poised for further growth. This automation tool, aimed at enhancing customer interactions, is seen as a potential revenue driver. Starboard’s call for more disciplined spending in sales, marketing, and administration could help Salesforce unlock even greater profitability while continuing its path of innovation.
As Starboard pushes for further improvements, the spotlight remains on Salesforce to continue its upward trajectory in both revenue and profit margins.
