Activist investor Starboard Value announced this morning that it was taking a “significant stake” in Salesforce, per CNBC. A presentation on Starboard’s website confirmed the firm’s interest in Salesforce, as well as Wix and Splunk.
The presentation looks at the company’s financial situation and concludes that it could be giving investors a better return. On the positive side, Starboard likes the company’s refreshed executive team with Bret Taylor as co-CEO.
It also likes Salesforce’s ambitious $50 billion revenue target for fiscal year 2026, but Starboard was less pleased with Salesforce’s combined growth and operating margin target of 42%. It claimed that Salesforce’s peers’ average is over 50%, and the implication is that it wants to see Salesforce closer to — or ahead of — its peer group.
Further, Starboard sees a company that has much greater scale than peer cloud companies like Workday and ServiceNow, its comparison companies. Starboard claims in the investor presentation that “despite expecting to grow slower than [these] peers, [it] is only targeting operating margins in-line to below its much smaller peers.”
“On a growth + margin basis, Salesforce significantly lags these companies and the peer set,” the company wrote in its presentation.
It believes that if Salesforce “generates incremental margins that are in-line with peer levels as it grows towards $50 billion in FY2026 revenue, margins would significantly exceed the Investor Day target.” And that would increase free cash flow per share over the next several years as it approaches that $50 billion revenue mark.
Salesforce issued a rather staid reaction to the news of Starboard’s move: “We are committed to acting in the best interests of our shareholders and are focused on continuing to execute on our strategy outlined at Dreamforce,” a company spokesperson told me.
This is not Starboard’s first attempt to take over an enterprise SaaS company. In 2019, it became one of Box’s biggest shareholders when it purchased a 7.5% stake, which would grow to 8.8% over time. A proxy battle eventually ensued, one which Box would ultimately win. It’s worth noting that Salesforce is a much larger company than Box, reporting $7.7 billion in revenue in its most recent earnings report in August, while Box reported $224 million.
It’s not clear at this point if Starboard intends to simply try and influence from the margins, or eventually take on the board, as it did with Box.
Holger Mueller, an analyst at Constellation Research cautions that it doesn’t necessarily have to be negative. “Never a dull moment at Salesforce. We will have to see what Starboard wants. It doesn’t always have to be a bad thing, as we saw with Pershing at ADP. [It ended up] creating more focus on innovation and product,” he said.
Salesforce stock is up over 6% in trading this morning on the news.