Jeff Smith of Starboard Value believes Salesforce has room for improvement and can increase profitability.

• After investment from activists like Starboard Value, Salesforce has seen an increase in profitability.
• One of the activist investors, Jeff Smith of Starboard, now believes that the company can improve its efficiency by reducing its spending on sales and marketing.

In 2023, the adjusted operating margin of the business software maker increased, resulting in a 98% jump in shares. Despite this, Starboard Value and other activist investors raised concerns about the company's financial performance. As a result, Starboard now sees more opportunities for improvement.

Jeff Smith, CEO of Starboard, stated at the 13D Monitor Active-Passive Investor Summit in New York on Tuesday that the company has been performing exceptionally well in executing, enhancing their profit margins, and advancing in the Rule of 40 or Rule of 50 for their industry. He believes there is still much potential for growth.

In 2022, the rule of 40 became more popular among software executives as share prices decreased and investors became concerned about central banks raising interest rates. Prior to this, many software companies prioritized rapid growth over profitability.

In 2022, Starboard contended that despite Salesforce's dominance in the customer relationship management software market, it had a lower operating margin than some of its competitors. Starboard disclosed its stake in the company, prompting Salesforce to reduce its workforce and accelerate its plan to increase its adjusted operating margin.

According to a regulatory filing, Starboard's Salesforce stake was valued at $432 million as of June 30.

Marc Benioff, Salesforce's co-founder, chair, and CEO, expressed pleasure in getting to know the activist investors who invested in the company. Mason Morfit, co-CEO of ValueAct Capital, joined Salesforce's board in March 2023. By June 2023, most of the stock's seven activists had departed, as Amy Weaver, Salesforce's finance chief, stated at a UBS event.

According to Starboard's presentation on Tuesday, Salesforce can improve its efficiency and profitability by reducing its spending on sales, marketing, and administrative costs, similar to other large software companies. Starboard used an average of 12.5%, 10%, 8%, 6%, 5%, and 4% for comparison.

Salesforce should aim to achieve the rule of 50 revenue growth by 2028, as advised by Starboard. Two possible scenarios were presented by the activist firm, both of which included an increase in Salesforce's revenue growth and a widening of its adjusted operating margin.

Salesforce's Agentforce technology, which was showcased at its Dreamforce conference in September, has the potential to increase revenue growth, according to Starboard.

Salesforce shares were down 1% during Tuesday's trading session.

Our investor base values feedback and dialogue with us, and Starboard remains a valuable shareholder in our discussions, as a Salesforce spokesperson stated in an email to CNBC.

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