Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Shares of Salesforce.com (CRM 3.57%) were rising today, up 3.1% as of 2:05 p.m. ET, more than doubling the returns of the overall market on a broadly positive day for tech stocks.
The outsized gains came as the company announced a broad restructuring plan that will see cuts in both employees and real estate. Investors applauded management for acknowledging the challenging economic environment and adjusting accordingly, after high growth and spending during the pandemic’s go-go times.
In a letter to employees, chairman and co-CEO Marc Benioff wrote, “As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.”
In an SEC filing Wednesday, Salesforce announced a broad restructuring plan that would see up to a 10% reduction in its workforce and the closing of some physical offices in certain markets and space reductions in others. Employee reductions are estimated to be complete by the end of Salesforce’s fiscal 2024, while real estate reductions should be complete by fiscal 2026.
The plan will incur up-front costs of between $1.4 billion to $2.1 billion. Between $1 billion and $1.4 billion will go toward the severance and other costs related with employment reductions, while $450 million to $650 million will go toward lease cancellations. These up-front costs will mostly show up in capital expenditures, according to the company.
There wasn’t any specific figure given for the ongoing cost savings that would result from these up-front costs, but obviously, the ongoing reductions should be significant. As a result, investors are applauding the move today.
Salesforce has had a rocky road of late, with several high-level executives departing the company, including co-CEO Bret Taylor and Slack founder and CEO Stewart Butterfield.
Yet while high-level executive departures are cause for some concern, it appears the company is now getting serious about controlling costs and generating meaningful profits on a GAAP basis. Salesforce has had impressive growth over its 24-year life span but has never really made high overall profit margins due to continuous reinvestment and acquisitions.
In October, Salesforce attracted prominent activist investor Starboard Value to invest in the company, so pressure from this new investor may also spur the company to get serious about controlling costs and boosting profits. Wednesday’s announcement seems to confirm the seriousness behind the effort, so investors may be getting excited about the prospects of meaningful profit growth in 2023, even if revenue slows in a tough macroeconomic environment.
Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.
