Management Under Fire

Vulture Fund investor Elliot Management is coming for Salesforce (CRM) and that could mean CEO Marc Benioff’s tenure there will soon be over.

Why?

Elliot’s primary strategy to lift the share price is to fire management and replace it with one of “their guys” to streamline the operation to profits.

Usually, an Elliot takeover is a swipe against how bad current management is and often with famously branded companies.

They just took a large position in Pinterest (PINS) and shares have done well since that investment.

Their track record bodes positive for the medium term of the share price.

Even if they are labeled as vulture fund investors, they usually turn out to be correct more often than not.

The reason I pinpoint Marc Benioff as someone that could be taken out to pasture is that he has been there for a long time and his ideas have most likely become stale.

His big investment in MuleSoft was a failure and he hasn’t moved the needle in the last few years. He even decided to retain a Co-CEO who he later fired and reinstalled himself as a solo CEO. Sounds like too much power in one person’s hands to me.

It’s hard for these types of tech magnets to leave the companies they created.

Therefore, Elliot usually invests enough that allows them to fight for board seats where they can influence who the future management will be.

We have seen this time and time again.

It has been a volatile stretch for CRM.

Earlier this month, the company said it was laying off 10% of its workforce and reducing its office space in certain markets.

Again, like with most tech companies, I believe 10% is just not enough, but they might as well fire the ones who are social justice warriors first.

Tech firms should use this time as a way to get as lean as possible and CRM could have easily cut 55% of staff.

However, they are worried about a worker revolt.

Many customers are also starting to pare down CRM services as they sense less business flowing through because of the most anticipated recession in history.

Salesforce had nearly 80,000 employees globally as of Oct. 31, up from more than 49,000 as of Jan. 31, 2020, according to company filings.

Salesforce's reported revenue for its fiscal third quarter ended Oct. 31 of $7.84 billion, up 14% from the prior year. That marked a sharp slowdown from 27% revenue growth in the same quarter a year earlier. The company also declined to issue guidance for its fiscal year 2024.

Instead of fighting this CRM – Elliot partnership, readers should just wait for a big dip to put money to work.

Granted, it could get messy if Benioff is jettisoned, but this is still an established brand that is a foundational software platform for many corporate companies including the big guns.

It certainly does look like an internal struggle will take place as CRM just added 3 new board members to combat Elliot.

Either way, Elliot seeks to install better management and wants a stronger company that will lead to a higher share price.

Whether entrenched executives fight this or not, once the ball gets rolling, it is mighty hard to stop.

Buy CRM on the dip.