Salesforce (NYSE:CRM) shares jumped 98% in 2023 in part after the business software maker increased its adjusted operating margin after Starboard Value and other activist investors raised concerns about the company’s financial performance. Starboard now sees more room for improvement.
“They’ve been doing a great job executing, improving their margins, moving up in the Rule of 40 or Rule of 50 for their for their industry, and we think there’s a lot more to go,” Starboard CEO Jeff Smith told the media Tuesday.
The Rule of 40 refers to the idea that a company’s revenue growth rate and profit margin should add up to at least 40%. It became a more widely favored measurement in 2022 among software executives as share prices drifted lower, with investors worrying about central banks pushing up interest rates. For many years, many software companies prioritized fast growth at the expense of profitability.
Starboard argued in 2022 that, even as Salesforce ruled the market for customer relationship management software, it delivered a lower operating margin than some of its peers. Starboard revealed a holding in the stock and Salesforce responded by cutting thousands of employees and moving up its timeline for widening its adjusted operating margin.
Starboard had a $432-million Salesforce stake as of June 30, according to a regulatory filing.
CRM shares dropped $2.44 Wednesday to $285.89.
