Elliott Management’s stake in Salesforce is about ‘margin expansion’

  • January 23, 2023

Salesforce Inc (NYSE: CRM) is in focus this morning after Elliott Management revealed to have taken a multi-billion-dollar position in the cloud-based software company.

Needham’s Scott Berg reacts to the news

Historically, the activist investor builds positions and demands board representation at underperforming businesses to push for operational improvements.

What, in particular, is it after at Salesforce, though, is yet to be disclosed. Nonetheless, discussing the news with CNBC this morning, Needham’s Scott Berg said:

My guess is this outcome is all about margin expansion [because] this is not a very profitable company, given its size and what we think is one of the largest and most expensive cost of customer acquisitions.

Berg currently has a “hold” rating on the Salesforce stock that’s down nearly 20% versus its high in mid-August.

Salesforce may have to opt for a bigger layoff

Earlier in January, the California-based company announced plans of lowering its global headcount by 10% in a bid to minimise costs (read more). According to Berg, however, it may have to further cut its workforce moving forward.

CRM’s headcount growth is still above revenue growth even after recent reduction in workforce. We won’t be surprised if it’s another 5.0% to 10%. But we think it’s a structural shift in how it operates that needs to be exercised here.

Salesforce Inc is yet to officially comment on the stock market news.

Late last year, CRM guided for $7.93 billion to $8.03 billion in revenue in its current financial quarter – the top end of which was roughly in line with Street estimates.  

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