Activist hedge fund Starboard Value has taken a stake in Salesforce and is calling for the cloud software group to increase its margins, arguing that the company has not taken advantage of its position as a market leader.
The $8.4bn New York-based fund, led by Jeff Smith, set out its argument in a presentation published on Tuesday. It attributed Salesforce’s valuation discount relative to its peers to a “subpar mix of growth and profitability”.
“The company’s share price has underperformed its benchmark indices, its closest peers, and the broader market over the last three years,” the hedge fund wrote in a presentation.
Starboard stopped short of making any specific recommendations, which is common for activist hedge funds that buy small stakes and usually seek to change management or force a sale or acquisition.
The hedge fund went as far as saying Salesforce’s refreshed management team “has been increasingly focused on improving the company’s growth and profitability”.
Salesforce, which launched in 1999, is run by its founder Marc Benioff together with Bret Taylor, co-chief executive.
Technology stocks have been badly hit in recent months as central banks across the world have tightened monetary policy to combat historically high inflation. However, Salesforce has been hit harder than its rivals.
Salesforce shares have plunged about 40 per cent since the start of the year, double the drop of its main rival Oracle, the cloud computing company founded by billionaire Larry Ellison. They rose almost 5 per cent in midday trading on Tuesday following news of Starboard’s stake.
The San Francisco-based company defended its performance, saying it is “committed to acting in the best interests of our shareholders and [is] focused on continuing to execute on our strategy”.
Salesforce announced a $10bn share buyback in August after reporting a quarterly revenue forecast that was significantly below analysts’ expectations.
The company is actively scouting for merger and acquisition opportunities and making organic investments to grow its cloud computing platform, said a person with knowledge of its executive strategy.
Starboard is considered among the most prolific activists on Wall Street, with three campaigns launched in the first half of the year, according to a report by Lazard. The firm has taken on companies such as health insurance group Humana and department store operator Kohl’s.