A warning in the clouds?
Should we be worried about Salesforce?
Yesterday I was frankly shocked after I read this tweet:
Over the last few weeks, several key executives left the company, in some cases without plans of succession. In a follow-up to this tweet the user also mentioned that Gavin Patterson, Chief Strategy Officer at Salesforce left the company. This comes after the earnings report last week, where only the departure of Co-CEO Bret Taylor was addressed. I believe that this should be a warning and a yellow flag for investors of Salesforce (like myself).
Recently CRM 0.00%↑ has shifted from a growth focus to a focus on profitability. This shift included a request to managers to focus on projects with high ROI and try to cut unnecessary costs. The company also significantly slowed down hiring (from 5000 new employees q/q to around 1000). At the same time, growth slowed to 14% y/o, 19% excluding FX headwinds. Additionally, Salesforce did not provide guidance for this year and will do those next earnings due to the uncertainty of the macro environment. My assumption is that a (possibly large) part of the company is not happy with cost-cutting measures and the new focus on profitability. I myself welcomed all proposed changes by Salesforce, including the share buybacks at these levels, but if a lot of the company isn’t willing to go this route, then there is a big, potentially investment case breaking problem at hand.
In Q2 CRM mentioned that the operating margin has a 100 bps headwind from Slack, so in order to reach higher margins, as they described in their investor day, I’d imagine Slack was asked to rationalize resources and improve profitability. This could have led to the mass leaving of Slack Execs in a short period of time (CEO, CPO, Marketing SVP). Slack was a huge acquisition for Salesforce, so seeing it fall apart would be detrimental to the company. At this point, I’m very cautious with Salesforce stock. Unfortunately enough I bought more shares last week, which I now sold again and reinvested into Veeva Systems, a higher conviction holding which is also down significantly over the last week due to the reaction to (in my opinion) decent earnings. I hate to trade in and out like this (even though I still hold CRM, it decreased from 3.5% to 2.6% of my portfolio) but I feel like it is the sensible thing to do given my decreasing conviction due to this unexplained mass leaving of top execs.
I hope you found something interesting in this spontaneous post, I’ll link some articles below I wrote about the two mentioned companies:
Very clear article my friend. Thank you for going through your reasoning process.
Will you now be waiting for the next ER to decide what to do or will you be deciding based on news & press releases?