How Activists Proved to be Salesforce’s ‘Superpower’
Unfortunately, he may be drawing the wrong lesson from the improvement. In his typical superlative-laden commentary, Benioff credited “these incredible numbers” to Salesforce’s “superpower,” its “Ohana culture”—also known as Salesforce’s support system for staffers. Ah—no. This improvement is entirely a result of the pressure activist investors such as Elliott Management exerted on Salesforce management earlier this year. So the real lesson is that Salesforce has been managed lazily for years. It’s great to see that changing. But the fact that Benioff is now running a company the way it always should have been run is hardly cause for self-congratulatory celebration. For more on the results see here.
Investors now have reason to worry about Salesforce’s top-line growth, which the company is projecting to be just 10% this year, well below a company average of 26% over the past decade, according to data from S&P Global Market Intelligence. Much of that slowdown is due to corporate customers spending money more carefully amid macroeconomic jitters. But it’s surely no coincidence that such a slowdown also follows the shuttering of Salesforce’s company acquisition engine, which juiced revenue growth over the past decade at a cost to margins.
Salesforce executives say they are taking steps to make everyone more productive. That’s heartening, more so than Benioff’s decision on tonight’s call to talk endlessly about the potential of generative artificial intelligence technologies to transform the corporate world, leading to what he predicted would be a new “supercycle” of business for tech companies generally—including Salesforce. The not-subtle message was that revenue growth will surge again, thanks to ChatGPT. That may very well happen. Then again, we are in a hype cycle around AI, and Benioff is not one to understate anything. Lots of tech companies are looking to cash in on the technology. Salesforce investors probably shouldn’t bet the farm on AI transforming the company just yet.
Take a Breather
Is this year’s cybersecurity rally too good to be true? That may have been what CrowdStrike and Okta shareholders were thinking late Wednesday afternoon as they sold off both companies’ stocks after each reported its latest earnings. Both companies did what any public firm aspires to do every quarter: They exceeded the guidance they previously gave for the quarter, and raised their full-year revenue outlook. And yet shares of CrowdStrike and Okta sank roughly 11% and 16%, respectively, after hours.
In CrowdStrike’s case, that sell-off followed a decent rally so far this year: As of Wednesday’s close, the stock was up around 55% since Jan. 1. So you could argue investors may have been sensitive to sobering news of any kind. The company’s net new annual recurring revenue came in at the lowest level since the October quarter of 2021, which may have disappointed them. In Okta’s case, the stock was up nearly 31% year to date before it reported, but investors may have been spooked by CEO Todd McKinnon’s comments in the earnings report that “macroeconomic pressures are increasing.”
There was collateral damage, too. Zscaler and SentinelOne, two other cybersecurity software companies whose stocks are up roughly 23% and 47% year to date, also dropped after hours. Those companies report earnings tomorrow. Be sure to read tomorrow’s newsletter to see how they fared.