When Salesforce releases results on Wednesday, it's anticipated to show the worst quarterly sales increase it has ever experienced.

When Salesforce releases results on Wednesday, it's anticipated to show the worst quarterly sales increase it has ever experienced. Yet, the key concern will be how far management is prepared to make expense cuts in order to meet demands made by activist investors.

After a decade of quick recruiting and significant acquisitions, Marc Benioff, the chief executive officer of Salesforce, has been under increasing pressure to increase earnings.

In recent months, the firm has seen investments from five activist investors: Elliott Investment Management, Starboard Value, ValueAct Capital Management, Inclusive Capital, and Dan Loeb's Third Point. After the appearance of these activists, management's first chance to speak with investors will be at the release of the fiscal fourth-quarter results.

Bret Taylor and Stewart Butterfield, the other co-CEOs of the firm, abruptly submitted their resignations, but the stock has already recovered 23% of those losses. In late November and early December, they both declared their intent to quit San Francisco-based Salesforce within a week of one another. According to Guggenheim Securities analyst John DiFucci, shareholder gains in the firm are most likely the result of activist engagement.

As the business strives to cut expenses and revive growth, investors will be "laser-focused on Benioff's comments and plan presented next week on the conference call," said to Dan Ives of Wedbush Securities. "The regular cookie-cutter conference call and perspective into FY24 will not satisfy street angst."

For the first time, rather than sales, the focus will be on the full-year operating margin estimate. Investors are interested in how rapidly the business can reduce costs and boost profitability. Salesforce established a target of a 25% operating margin for the fiscal year 2026 before the activists were visible. Michael Turrin, an analyst at Wells Fargo, believes the business may achieve that goal two years earlier.

The corporation is also scaling back its real estate as part of the cost-cutting drive. The previous headquarters of Tableau and Slack in Seattle and San Francisco, respectively, as well as at least a dozen other locations acquired in major mergers and acquisitions, will be shut down. A corporate representative explained the office closures on February 13 by stating, "We are bringing all Salesforce employees together under one roof in hub cities."

Salesforce's operational philosophy may have changed as a result of investor pressure, according to Keith Bachman of BMO, who also increased his margin projection. The software company has had a turbulent few months; within that time, it has changed board directors, laid off 8,000 employees, and lost multiple senior executives. It includes Taylor, who was seen as Benioff's successor apparently. Several analysts predict that these interruptions will have an immediate negative impact on sales and staff morale.

But, assuming macroeconomic and restructuring issues are resolved, the earnings report may represent a "curving moment" for stronger margins and growth acceleration, according to Kash Rangan, an analyst at Goldman Sachs Group Inc.

(Bloomberg.com, Reuters.com, Investing.com)