Salesforce catches a break

This is an audio transcript of the FT News Briefing podcast episode: ‘Salesforce catches a break’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, March 2nd, and this is your FT News Briefing.

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Salesforce finally caught a break. And the world’s biggest hedge fund is shrinking. Plus, Chinese exporters are turning on the charm. We’ll take a look at whether it’s working. I’m Marc Filippino, and here’s the news you need to start your day.

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The business software company Salesforce is battling activist investors who have been unhappy with the failing stock price and wanna shake things up. Yesterday, Salesforce got a win. It said fourth-quarter earnings beat Wall Street’s revenue expectations and the company forecast a stellar 2024. Shares soared. To find out what this means for the company, I’m joined by the FT’s venture capital correspondent George Hammond. Hi, George.

George Hammond
Hey, how you doing?

Marc Filippino
So, George, investors love this. I mean, the stock shot up as much as 16 per cent after the bell. What was all the optimism about?

George Hammond
So the company’s been having a bit of a tough time. As you mentioned, there’s these activists who got into the stock in recent months. There’s been this increasing pressure on Salesforce, and I think that comes against the backdrop of, you know, declining share price, growth has been slowing down. And Salesforce’s story for 25, 24 years that it’s been in business has been kind of growth, growth, growth. So with that slowing, there has been more scrutiny, more pressure. And I think the story has become a little bit tricky for the company and its founder, Marc Benioff. So the kind of structural thing that’s going on underneath this is that the company has shifted its emphasis. So Benioff was very clear in the call, post-earnings call, that they’re moving from the growth orientation to focus much more intently on profit. He actually had this great phrase. He said:

Marc Benioff
You all know that we’ve never had an efficiency focus in the company before ‘cause we’ve had 24 incredible years of, where we’ve had to just grow, grow grow.

Marc Filippino
Are there any specifics on how the company is gonna do this?

George Hammond
So I think the, I mean, there are the cuts they’ve already mentioned. I think that is gonna help with margins. So laying off 8,000 staff, obviously very significant in that and reining in some spending as they’ve looked to grow in recent years. And that’s been the focus of the company that has obviously, you know, it had an impact on margins. And as they rein that in, I think that’s where a lot of the growth is gonna come from. They are talking very excitedly, as is everyone else in the Valley, about the impact of AI on their software. So that could play a role as well. On the call, Benioff didn’t get that much more specific, so we might have to wait and see where the rest of those gains come from in the operating margin.

Marc Filippino
So this is a nice moment for Salesforce, but is it gonna actually get activist investors like Elliott Management off of Benioff’s back?

George Hammond
Well, I guess the play for these activists who bought in, with the stock price having come down a tremendous amount from its 2021 peak was that, I mean, the worst-case scenario was that they buy in, depressed share price, things would improve and they earn a fair chunk on that. And already, this year before yesterday’s after-market trading, the stock was up 25 per cent. So that has been a successful strategy. That said, the likes of Elliott Management are not really minded to buy into a company and just ride each share price increase. They’re lobbying for board seats. They’ve nominated a slate of directors for the board ahead of the earnings call. And I suspect they will keep the pressure on to drive efficiency faster and harder than Benioff might perhaps want to. So I think while the results on Wednesday are definitely a big vindication of Salesforce’s strategy so far and probably buy some time and respite for the company, I don’t expect this to completely quell the activist. No.

Marc Filippino
George Hammond is the FT’s venture capital correspondent. Thanks, George.

George Hammond
Thanks very much, Marc.

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Marc Filippino
The largest hedge fund in the world, Bridgewater Associates, is undergoing a huge shake-up. Actually, it’s the biggest shake-up since founder Ray Dalio gave up control last October. In a memo to clients and staff yesterday. CEO Nir Bar Dea announced the company is cutting 8 per cent of its workforce and it’s putting a cap on its flagship investment fund. Here’s the FT’s Ortenca Aliaj on why Bridgewater is doing this.

Ortenca Aliaj
So this has been a pretty frequent problem in hedge funds, which is size and how to make money. The bigger you get, the more difficult it is to be nimble. So because you’re moving a ton of assets at the same time, if the market moves against you, which it did for Bridgewater in the end of 2022, it can be much harder to unwind those positions or to move out of those positions. So being smaller makes it easier to exit certain positions when you look like you’re into trouble.

Marc Filippino
Right. So does anything about Bridgewater’s situation say something bigger about how hedge funds are doing right now?

Ortenca Aliaj
I think what it shows is that it has been more precarious on the succession issue, which is an issue for a lot of the funds that is coming up, this sort of former masters of the universe. You know, you have Izzy Englander, you have Paul Singer, who was sort of known as titans of the industry. They’re getting older and at some point they, like Dalio, are probably going to have to seek control and hand over the reins of the funds. So I think it raises questions about how well this can be done, because for Bridgewater it was a very long, drawn out process.

Marc Filippino
Ortenca Aliaj is the FT’s mergers and acquisitions correspondent.

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Chinese factories are trying to recover from three years of harsh Covid-19 lockdowns and a collapse in global demand that came with it. So Chinese factory owners and exporters are now on a global charm offensive to try and win back customers.

Primrose Riordan
So they’re going overseas, going to these trade fairs and trying to encourage retailers to take them back on.

Marc Filippino
That’s the FT’s South China correspondent Primrose Riordan. She says local governments are in on the marketing push as well.

Primrose Riordan
At the moment, a lot of local governments, because they’re worried about the hit to their local economies, have also organised these delegations to go overseas and bring with them a whole lot of different exporters and factory owners with them, to go to trade fairs, especially across Europe and the US. And this has obviously come at the same time that the US has been encouraging companies to diversify their supply chains out of China, and there’s been a lot of talk globally about decoupling. And so Chinese factories are trying to woo back some of the customers that they had lost because of not only these geopolitical issues, but some of these demand and also the Covid isolation issues as well, where they’ve been cut off from the world.

Marc Filippino
So are there any signs that it’s working? Primrose says yeah. Well, at least for some of them.

Primrose Riordan
One glasses logistics company told us that they had had a really quite strong uptake in orders as a result of a trip to Italy. Others are finding it slightly more difficult, especially considering the economic dramas that are going on abroad. But definitely some of them are saying that this has actually had quite a good impact for them and they have starting to get back some of these customers. But it really depends on the industry, and some in things like electronics and other industries are finding it a little bit more difficult.

Marc Filippino
Primrose Riordan is the FT’s South China correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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