Hedge Fund Starboard Value Wagers on Salesforce Shares. Is Now the Time for CRM Buying?
Salesforce Strengthens AI and Data Cloud Business Amidst Challenges
Salesforce, the California-based tech giant known for its leadership in cloud computing and customer relationship management (CRM), has been making strides in its AI and Data Cloud division. Despite facing challenges such as slowing revenue growth, shaky execution of AI strategies, and aggressive acquisition spending, the company has managed to turn a corner in this crucial area.
The AI and Data Cloud unit of Salesforce surpassed the $1 billion mark in annual recurring revenue, recording a growth of over 120% from the previous year. This growth is particularly noteworthy as nearly 60% of Salesforce's top 100 deals now include AI and Data Cloud, indicating a growing demand for these services.
One of the key drivers of this growth is Agentforce, Salesforce's AI platform. Since its launch, Agentforce has secured over 8,000 deals, with half being paid. The platform aims to automate customer interactions and help businesses scale their services while reducing reliance on human labor. Agentforce has processed over 750,000 customer requests and helped cut case volume by 7% year-over-year through automation of workflows.
In an effort to further bolster its AI strategy, Salesforce announced plans for an $8 billion all-cash acquisition of Informatica, a leader in AI-powered cloud data management. If completed, this would be Salesforce's most significant buy since the $27.7 billion Slack deal in 2021.
Financially, Salesforce's Q1 earnings report for fiscal 2026 topped Wall Street's expectations, with revenue climbing 8% year-over-year to $9.8 billion. Adjusted EPS for the quarter came in at $2.58, beating estimates of $2.54. The non-GAAP margin held firm at 32.3%, slightly above last year's 32.1%. For fiscal Q2, Salesforce is guiding for adjusted EPS of $2.76 to $2.78 on revenue between $10.11 billion and $10.16 billion. For the full year, Salesforce lifted its outlook, calling for $11.27 to $11.33 in adjusted EPS and revenue between $41 billion and $41.3 billion.
However, the company's financial performance has not been without its challenges. GAAP operating margin rose to 19.8% from 18.7% a year ago, but this is still below the non-GAAP margin.
In a move that signals renewed interest from investors, Starboard Value, an activist hedge fund, has increased its stake in Salesforce (CRM) by nearly 50% in the second quarter of 2023, holding approximately 1.3 million shares as of June 30. Starboard's increased involvement in Salesforce carries financial implications centered on driving performance improvements to unlock shareholder value, with the potential benefit of a stock price recovery if these efforts succeed. However, the move also underscores ongoing challenges Salesforce faces in growth and strategic focus.
Wall Street, on the other hand, remains optimistic about Salesforce. With a consensus "Strong Buy" rating for CRM stock, an average analyst price target of $349.69, and a Street-high target of $440, investors seem to see untapped value in the company.
[1] Salesforce distributes $3.1 billion to shareholders through buybacks and dividends, signaling confidence in its long-term growth prospects. [2] Salesforce's Q1 earnings report for fiscal 2026 topped Wall Street's expectations, with revenue climbing 8% year-over-year to $9.8 billion. [3] If completed, the Informatica acquisition would be Salesforce's most significant buy since the $27.7 billion Slack deal in 2021. [4] Starboard Value's latest stake increase in Salesforce signals a readiness to pressure the company to improve its efficiency and profitability.
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