The Six Five team discusses Elliott Management storms Salesforce.
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Transcript:.
Patrick Moorhead: So Dan, for the past couple years, you and I have talked on and off about activist investors taking big stakes in companies that they think they can run a play on. And for those who don’t do a lot of investing, essentially, an activist investor looks at a potential victim, somebody that they think they can come in and buy a certain piece of the company, which gives them rights to either suggest to bring in a new board, make a lot of changes, get into a proxy battle. Elliot Management is a big one. Starboard is a big one as well.
And this week activist investor Elliot Management joined Starboard in targeting Salesforce, to go after, essentially, to get them to do things and then the stock goes up, and then they sell. That is the grift. So really kind of got me thinking, if you look at, again, we’re not equity analysts, we’re industry analysts, over the past year, Salesforce stock is down 22%. Now a lot of other stock is down. Five years, the stock is up 50%. But I do think that people have the right to question, let’s say, organic growth versus acquisitions that the company has made, like Slack as an example.
My recommendation to Salesforce is, first and foremost, don’t over rotate on this. They came in… It’s interesting, Elliot wrote this love note to Benioff that they did publicly, talk about how much they respect him, and what a great company he has built, and how they followed him for so long. And I think that’s typically just BS just to show that, “Hey, we’re not going to be hostile. We’re going to start nice, before doing a complete broadside on you.” And it’s important that Salesforce and Marc Benioff don’t under rotate either, and ignore it. Because what happens is companies like Starboard and Elliot, they start to raise the heat over time.
We’ve seen this at Apple. We’ve seen this at Qualcomm. We’ve seen this at Intel. We’ve seen this at a bunch of other companies. So I’m going to be watching this very closely about how this rolls out. Salesforce is an easy target, right now. Where you had the CEOs in play, you’ve had multiple senior executives stand down. That 25% growth rate that just seemed like guaranteed went down to 14, is expected to go down to 9%. Mark Benioff spends a lot of time in the limelight, that’s not necessarily tech. So it’s going to be interesting to watch.
Daniel Newman: I think the last several months have been refocused months for a lot of companies, and we’re in a refocus period for Salesforce. The company did a lot of inorganic growth. It’s well documented. You and I both published some various pieces about this. I think they made some good acquisitions. Companies like Tableau were a very strategic acquisition in a world where data and the ability to visualize data is going to be paramount in the long term.
The company’s been very sort of siloed in how it’s told its story, Service Cloud, Sales Cloud, Marketing Cloud. And I think what’s happening is there’s sort of these capillaries that need to run between the veins and arteries, and it’s going to be one of these moments where the company needs to retell its story again as a more horizontal story, and not in these kind of silos. Elliot coming in, I’m not sure how much value it really adds to the company right now, but I do think it’s a reminder that even the companies that look the most stable, and like you said, consistent growth, can very quickly become targets of an activist.
But I think if you look at an Elliot, this is a much sort of longer term safe play, and I know that they’re going to try to make this move in the short term, but I think it’s going to take a few quarters. The math is pretty simple to me. You’ve got workforce reductions everywhere. Salesforce is a subscription service in most cases, which means less people working, less seats, it’s going to be harder to show growth. So they’re not only growing against a slowing, but they’re growing against actually having reduction in utilization of their subscriptions. And then now you’re going to have to see those people added back.
Now, just like semiconductors go through troughs and peaks, you’re going to see a similar thing here. We’re seeing workforce reductions. We’re waiting for the Fed to cut rates, when the Fed starts cutting rates, stocks are going to go up, companies are going to start hiring fast growth is going to come back to the economy, and SaaS numbers are going to go up.
Salesforce has more competition, there’s more SaaS out there, there’s more cloud-based solutions out there. So they’re going to, of course, be under some level of pressure, but I actually think the acquisitions they’ve made could bear fruit, but that’s up to them to make it happen. Slack for instance, for the last two years, I’ve been advising, “you’ve got to tell a better story. Microsoft Teams are going to eat your lunch. Here’s a better approach to it.” They’re listening, but there’s been a lot of turnover, a lot of change, new leadership in the Slack group, and they haven’t quite gotten Slack first to be Slack first. But I do-
Patrick Moorhead: No.
Daniel Newman: 280 million users, it doesn’t take a huge chunk of market share to be won over by Salesforce to make a difference. Elliot will put some pressure on Marc Benioff, but I don’t see him as the type that’s going to cede a lot of power or control to an activist investor. He’s built the company to a very, very sturdy and stable point. The market largely does respect him, and if he does, to your point Pat, get back in the chair and show that he, now without Bret Taylor, now without Stewart Butterfield is willing to lead the company the way a company needs to be led, I think he can get it back on the right track. So-
Patrick Moorhead: There’s been a lot of folks who have kind of bounced back. Michael Dell “retired” and then came back to take the helm. I mean, we’ve seen, I mean, Steve Jobs came back. Michael-
Daniel Newman: Michael goes in and out of the company.
Patrick Moorhead: Has he actually gone out though? I mean-
Daniel Newman: Well, not really, but I mean he certainly seated a lot… I mean, he hired two CEOs to not be running the company. But what I’m saying is whenever it gets tough over there, he suddenly shows up again with a new concept, a new idea, and he reinvigorates his audience and his customer base, and off they run. I think Marc will probably be fine. Actually, I’m certain of it.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
