Salesforce Inc (CRM)

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Salesforce's Benioff aims to improve profits amid scrutiny from activist investors
By: Investing.com | March 2, 2023

Salesforce Inc (NYSE:CRM) chairman and chief executive officer Marc Benioff said boosting profits is the workplace software group's "highest priority," as pressure builds from a host of activist investors to show returns.

In an earnings call, after the firm reported better-than-expected fourth-quarter results and guidance, Benioff argued that the company needs to accelerate its two-year plans to enhance income.

"[W]e've hit that hyperspace button since we last talked to you a quarter ago, and I'm thrilled with the progress we've made," Benioff said. "Changes that used to take months happened in weeks. Changes that used to take weeks are happening in days."

Activist investors including Elliott Management, Inclusive Capital Partners, and Starboard Value have flagged worries over growth and margins in the wake of a pandemic-fueled boom in spending and deal-making.

Benioff's typical focus on growth over profits has been a key point of contention, particularly during a period that has seen shares in the company shed nearly a fifth of their value over the past one-year time frame. In response, Benioff said the time has come to "pull back" from Salesforce's long-time push to "just grow, grow, grow."

"Profitability is our - truly our number one strategy, and that's my number one strategy. That's what I've been focused on with the management team," Benioff added.

In a statement, Elliott Management welcomed the commitments made by Benioff in the earnings call, saying they represent progress towards regaining investor trust. But it still intends to keep working with Salesforce to "achieve the best outcome."

"The strength of Salesforce's business and its movement in the right direction are key reasons we are among the company's top investors, but much work remains: Salesforce needs a sustainable leadership plan and a board that demonstrates it can provide accountability through proper oversight," Elliott said.

"To fully earn back the confidence and support of investors, Salesforce leadership must now deliver on its promises."

The comments come after Salesforce announced earnings per share of $1.68 in the fourth quarter on revenue of $8.38 billion. Analysts polled by Investing.com had predicted the numbers would come in at $1.36 a share and revenue of $8B.

Subscription and support revenues for the three months until the end of January were $7.79B, an increase of 14% year-over-year. Professional services and other revenues for the quarter also jumped by 19% to $600 million.

Quarterly operating margin, which has been a worry for activist investors, was 4.3% after a 2.4% decline in the prior-year period.

Salesforce expects to generate first-quarter earnings per share of $1.60 to $1.61, well ahead of forecasts of $1.31. For its 2024 financial year, its guidance on earnings per share was in a range of $7.12 to $7.14, also topping Bloomberg consensus estimates that called for $5.78 per share.

Goldman Sachs analysts said the company delivered a "substantial beat." As a result, they raised the price for the second time this week, moving to $320 per share.

"CRM not only delivered a substantial 5% revenue and OM beat (+700 bps) in F4Q24 but also raised FY24 OM by +300bps vs the most bullish expectations (GSe). This is being enabled by an extensive overhaul of GTM which will improve sales efficiency (LTV/CAC) by emphasizing platform sales and higher retention... We continue to believe FY24 revenue growth of +10% is likely the trough followed by potential re-acceleration in FY25," the analysts said in a client note.

Mizuho analysts hiked the price target by $25 to $225 per share, citing an "impressive FY24 operating margin guide."

"Notwithstanding macro challenges, we reiterate that CRM remains well situated to help its vast customer base manage revenue and process optimization via digital transformation. And more importantly, we believe CRM's outlook signals a new chapter dictated by profitable growth above all else," they wrote.

Shares in Salesforce were higher by more than 15% in premarket trading on Thursday.

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