Shares in Salesforce (NYSE:CRM) stock rose overnight after Dan Loeb’s Third Point hedge fund took a stake in the company.
Third Point is the fifth activist group to take a position in the maker of cloud-based database applications. Other hedge funds that have invested include Elliott Investment Management, Starboard Value, ValueAct Capital Partners, and Inclusive Capital. Elliott has named a slate of directors. ValueAct’s CEO is already on the board.
Bennie and the Hedgies
Salesforce lost nearly half its value in 2022, but it is up 28% in 2023 on the strength of the hedge fund interest. The company also laid off 10,000 workers and cut office space.
Salesforce is due to deliver results for its fourth quarter, ending in January, on March 1. Analysts expect earnings of $1.37 per share on sales of $8 billion.
CRM stock rose over 300% between 2017-2021. Its annual Dreamforce show drew numerous big stars in music and business journalism. It was the biggest employer in San Francisco and led the development of the city’s tallest office tower.
Its takeovers of Tableau and Slack were then expected to turbocharge its growth. They didn’t.
Salesforce is not failing but growth is stalling. Revenue grew just 1-5% during the first three quarters, although profits remained strong. Before fiscal 2023, which ended in January, Salesforce grew at about 25% each year, to $26.5 billion in sales for 2022.
The company has also suffered from high-level turnover below co-founder Marc Benioff, who is 57. Co-CEO Bret Taylor, who left last month, was the second person to have the title, leading many to conclude Benioff won’t let go.
Salesforce remains a favorite of analysts with 36 at Tipranks following the stock and just one saying sell while 25 scream buy.
CRM Stock: What Happens Next?
Salesforce was a star when cloud-based databases were the software industry’s hot niche. Now artificial intelligence (AI) is the hot niche.
Expect the hedge funds to take the stock price higher, but hedge funds can’t sell software. Salesforce board meetings are about to get interesting. I expect it to seek an AI angle.
On the date of publication, Dana Blankenhorn held a long position in CRM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
