Activist investors move on Salesforce. Is Big Tech Safe?


Elliott Investment Management, which heralds the fight for higher profits from the enterprise-software giant, is holding a stake in Salesforce Inc. Tech stocks fell early Monday after taking a multibillion-dollar position in the U.S.

If the goal is to return to pre-Covid levels of employment, shareholder activism is on the rise, and recent deals include Alphabet Inc., Amazon Inc., Microsoft Corp. And other job cuts could go deeper. Elon Musk has shown that a large internet platform can keep the lights on with the working class. Could the rest of Big Tech, which has seen its shares plunge in the wake of the pandemic over the past 12 months, take a similar activist attack?

Don’t count on it. As Musk is finding out, job cuts alone won’t guarantee long-term shareholder value. Stable leadership is a much better sign, and as it stands, most Big Tech firms now run by technocrats will almost certainly be chasing more cuts in 2023. And they’re doing it without the guidance of activists, said senior analyst Richard Cramer. In Aret research. “The big tech companies are very weak [to activist investors] Because they are among the best managed companies in the world and have a large net cash balance.

This is thanks in part to previous campaigns targeting Silicon Valley’s obsession with founder-gods. In the year In 2013, Microsoft’s shareholder lobbying led to the replacement of Steve Ballmer by Satya Nadella, whose leadership added more than $1 trillion in value to the company.

After his death, the mercurial Steve Jobs was replaced by supply chain manager Tim Cook, who added nearly $2 trillion in market value during his tenure. Lunar explorers Sergey Brin and Larry Page were replaced by operations expert Sundar Pichai.

Salesforce, on the other hand, is still led by co-founder Marc Benioff, and on paper the attraction of Elliott is clear. The surprise announcement in November that CEO Brett Taylor was stepping down raised questions about a succession plan.

And while enterprise software is where the technology’s fat margins are most attractive to investors, Salesforce now trades only in line with the S&P 500 application-software index when measured on forecast earnings, but enjoys early interest and a hefty premium. The shares are down 40% since the tech sell-off began on a high in early 2022 — even after Monday’s rally — compared to a less than 30% decline in the Nasdaq Composite Index. While the company is on an acquisition spree, including the $26 billion acquisition of Slack, revenue is expected to grow just 10 percent in the 2023-24 financial year.

Salesforce has already announced a 10% cut in its workforce, more than some had previously predicted, but to appease a potentially disruptive new shareholder, it could further cut sales and marketing costs, increase stock buybacks and add more willing people to its board. Benioff challenged.

Starboard Value, another activist whose stake in Salesforce came out in October, said the company’s September investor day targets were lower than some of its peers.

Elliott is no stranger to technology. At the end of last year, Pinterest Inc. He took a board seat on and took cloud computing firm Citrix Systems Inc. private in a $17 billion deal. Here, the activist seems reasonably supportive, saying that he has deep respect for Benioff and “looks forward to working constructively with Salesforce.”

It doesn’t make much sense to be more aggressive in taking on the big tech companies. A popular two-tier structure that gives technology founders more voting power is a popular two-tier structure with activist shareholder developments, especially for Meta Platforms Inc. Still, the meta provides a protective shield led by a founder with an expensive and elusive dream to build the opposite.

Without that structure, activists would have targeted Mark Zuckerberg’s empire long ago. The company has spent more than $10 billion on a virtual-reality platform that many people don’t use, and a field Microsoft says it’s recently abandoned. Today, the best shareholders can hope for is collective market pressure for Zuckerberg to rein in his investment.

Some attempts have been made to do so: Altimeter Capital founder Brad Gerstner, a Meta shareholder, wrote a letter to Zuckerberg last October urging him to reduce the company’s capex, which was more than “Apple, Tesla, Twitter Snap” combined. And Uber teamed up.

Even with tens of thousands of employees, the biggest tech firms are still some of the most profitable businesses on Earth. As long as the technocrats are in control — or the few founding leaders who control the two-class structure — activists have little to gain from getting involved in their cause.

More from Bloomberg Commentary:

• Big Tech is in trouble. That’s what Parme Olson needs

• Elliott Meets in $16 Billion Tusle: Chris Hughes

• The Disney-Pelz show board should not be taken as Villa: Bet Kuwait

(1) Cook In 2013, he dined in Carl Icahn’s New York apartment and had his own brush with shareholder activity.

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

Parmy Olsen is a Bloomberg opinion columnist covering technology. A former reporter for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous.”

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, the Financial Times and The Independent newspaper.

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