Activist Starboard focusing on profitability at Salesforce, Splunk and Wix

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NEW YORK, Oct 18 (Reuters) – Activist investor Jeffrey Smith said on Tuesday his investment firm Starboard Value is currently involved with Wix.com (WIX.O), Splunk (SPLK.O) and Salesforce (CRM. N), and was engaged with management on ways to bolster the valuations of these high-growth companies.

Smith said the common theme for all three companies was that the level of growth they promised had not translated into appropriate profitability and, therefore, value for its shareholders.

High-growth companies have benefited from booming valuations in recent years but, in 2022, as US interest rates have risen, investors have shifted their focus from prioritizing future potential to the current performance of a company, which depressed market values.

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The trio of stocks presented by Smith have fallen between 37% and 54% this year. They rose between 2.3% and 4.6% on Tuesday.

“We need to call on the management team to be as competitive in delivering shareholder value,” Smith said of Salesforce, noting that it has market-leading positions among all its products and a highly competitive culture.

“They win in the market. We need them to win for shareholders. That’s why we’re involved.”

Smith was detailing the thesis of his most recent investments at the 13D Monitor Active-Passive Investor Summit on Tuesday.

On Salesforce, Smith said Starboard has been engaging with its leadership team over the “last few months” and that new executives — including co-CEO Bret Taylor, who is also chairman of Twitter’s board of directors Inc and was promoted to his Salesforce position in November 2021 – were better focused on balancing growth aspirations and profit making.

However, recent targets unveiled by Salesforce would still result in performance similar to or below that promised by peers, even if Salesforce had a much larger scale.

Why Salesforce is trading at just 10 to 12 times free cash flow per share with peers at 20 to 25 times, Smith said, adding he sees “huge upside” for the stock price. stock.

Starboard is one of the most active activist investors in the industry and has had a high rate of success in placing directors on boards, often through settlements with the company.

On Wix, in which Reuters revealed last month that Starboard had acquired a 9% stake, Smith said he welcomed a cost-cutting program the company has already announced, but said things could still improve beyond the company’s goal of achieving 20% ​​free cash flow. margins by 2025.

“We expect Wix to aim for margins above 25%, which would achieve a more appropriate growth and profitability target of over 40%,” Smith said.

At Splunk (SPLK.O), Smith said he and his team were excited about the company’s new CEO, Gary Steele, and looked forward to “better execution,” saying it was possible to push for more. operational improvements.

“We believe there is a significant upside at Splunk,” Smith said, noting that the company could increase free cash flow margins and maintain a strong growth profile that could see Splunk generate eight to nine dollars of free cash flow per share by 2025.

He added that in addition to growing profitability, Splunk’s business made it very attractive as a potential acquisition target. In February, the Wall Street Journal reported that Cisco Systems Inc had made a $20 billion bid for Splunk, and Smith said there had been other suitors in recent years.

“This dynamic creates multiple ways to earn and makes investing in Splunk even more attractive,” he added.

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Reporting by Svea Herbst-Bayliss Editing by Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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