December 3, 2023

Sharing power is a tricky endeavour. Salesforce founder Marc Benioff has tried to implement the set-up twice. Neither co-chief executive lasted long. In 2020, Keith Block left less than two years into the role. Successor Bret Taylor announced his departure last month after just over a year in the role.

In addition to Taylor, Benioff has also lost his chief product officer Tamar Yehoshua and Stewart Butterfield, chief executive of Salesforce-owned messaging service Slack. After selling out to big companies, founders often make a dash for the exit once the deal goes through. Butterfield was tipped for potential succession, however, which might have encouraged him to stay put.

The exodus may indicate disagreements at the top of the organisation as it comes under pressure to curb its expensive acquisition habit. Salesforce purchased Slack for $27.7bn in 2020. The messaging app’s popularity during the pandemic made it an acquisition target.

Salesforce shares have done poorly this past year. Chart showing the relative performance of SAP SE, Oracle and Salesforce share prices in 2022. Salesforce shares have fallen 50%  this year

But Slack remains far smaller than Microsoft Teams. Like previous Salesforce acquisitions it was also expensive (valued at 26 times expected revenue), fast growing (roughly 40 per cent that year) and lossmaking.

Slack could become the user friendly interface through which Salesforce sells lots of other software to customers, as Benioff claims. But Salesforce’s shopping spree has weighed on its net income. In the last quarter, net income of $210mn on $7.8bn of revenue meant a margin of less than 3 per cent. Oracle, a slower growing rival, has margins over three times as large.

Salesforce is less profitable than Oracle. First chart showing after tax profit margin (%) Oracle has a profit margin of 15.8% compared with 5.5% for Salesforce in 2022.  Second chart shows worldwide IT spending growth will wane. With % growth expected to fall from 10.1% in 2021 to just 0.8% this year before rising to 5.1% in 2023

Low profitability and meagre free cash flow is acceptable when growth hovers around 25 per cent. But in the third quarter revenue rose 14 per cent on the previous year. Guidance for the year is a rather depressing 17 per cent as businesses rethink spending. That would explain why Salesforce’s share price has begun to trail not only Oracle but Germany’s SAP as well over the past year.

No wonder activist investor Starboard Value has emerged as a shareholder, agitating for change. Benioff reportedly still hunts for deals. But any hint of more M&A should prove unpopular.

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Salesforce: departures hint at changes to M&A strategy  Republished from Source via



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