Salesforce Departures Provides Excellent Buying Opportunity

In a few days, Co-CEO Bret Taylor, Slack CEO Stewart Butterfield, Slack Chief Product Officer Tamar Yehoshua, and Slack Senior Vice President of Marketing and Communications Jonathan Prince announced their departures from Salesforce (CRM). 

No one felt the news more than Salesforce Chairman, Co-CEO, and co-founder Marc Benioff. He owns 30.09 million shares of the software company’s stock. The 7.4% drop in CRM’s share price on Monday cost Benioff paper losses of $320 million. 

In 2022, Salesforce’s shares are down nearly 48%, cutting the value of Benioff’s holdings by $3.8 billion. There isn’t anyone as invested in the company’s success as Benioff.

After Monday’s decline, Salesforce shares are trading at their lowest point since the March 2020 correction. 

Ten years from now, investors will look back at the company’s latest headlines and give thanks for the buying opportunity presented by Salesforce’s ongoing swoon.

If you’re an aggressive investor, that’s why it's an excellent time to buy.

Explaining the Why of These Departures

Before investors understand what the departures mean for the company's future, one needs to look at each of the decisions on their own. In a bubble, they are less than coincidental.

Let's start with Butterfield. He came with the nearly $28 billion Slack acquisition in July 2021. Butterfield’s company, Tiny Speck, which he co-founded in 2009, began working on Slack in early 2013 -- stands for Searchable Log of All Communication and Knowledge -- launching an initial preview release in May 2013. 

In February 2014, it officially launched Slack to the public, and Tiny Speck became Slack Technologies. A little more than seven years later, Butterfield received more than $1 billion in cash and a little more than three million shares of Salesforce stock. Already a billionaire, the deal further padded his mattress. 

More than 13 years after co-founding Tiny Speck, it doesn’t seem odd that Butterfield wants to spend more time with his family. Nor is it strange that he’s departing less than two years after Salesforce acquired Slack. It’s prevalent for entrepreneurial CEOs to leave after an acquisition.

It’s not a big deal.

What About Co-CEO Bret Taylor?

Bret Taylor was promoted to Vice Chair and Co-CEO of Salesforce on Nov. 30, 2021. So, he’s leaving after one year as Co-CEO. Taylor was COO from December 2019, President and Chief Product Officer from November 2017, and CEO of Quip from August 2016.

Well, Taylor was CEO of Quip from September 2012 to November 2017. Salesforce acquired Quip, which was co-founded by Taylor, in 2016 for $750 million. 

So, the fact that he was Co-CEO for a year is a testament to how much he enjoyed working with Benioff. Unfortunately, co-CEO arrangements often don’t work, not necessarily because the two people in the role can’t work together.

“‘Even though they are two CEOs, in reality, we all know that a cofounder is much more powerful than the incoming CEO,’ says Dinesh Hasija, assistant professor of management at Augusta University’s James M. Hull College of Business. Co-CEOs need equal footing to be sustainable, he explains. At Salesforce, Benioff had the final say by design, according to The Information,” Fortune reported on Dec. 2.  

Taylor wanted a role where he was the top dog. He would never get that at Salesforce until or unless Benioff decided to wander off into the sunset. That’s unlikely. Especially with its share price so low.

It’s fair to say that Taylor concluded that if he wanted to do something where he’s driving the bus, it would have to be outside Salesforce. 

Read into it what you will, but Taylor’s departure has everything to do with ambition and personal goals and less with an unworkable relationship.

As for the other two executives, they were both loyal lieutenants of Butterfield’s. They joined Slack around the same time in early 2019. They felt it was time to move on, given the changing guard. 

Taken out of context, investors will think the worst, but the reality is that all four of these departures were personal decisions with little to do with a dysfunctional C-suite. 

At least, that’s the way I see it. 

Salesforce Is Cheap

As I said in the intro, CRM stock hasn’t traded this low since March 2020. 

Of the 32 analysts covering its stock, 25 believe it's a Moderate or Strong Buy with a mean target price of $191.41, 45% higher than where it’s currently trading. Its price-to-sales ratio is 4.43, half its five-year average. By virtually every financial metric, Salesforce is cheaper than it’s been in years.

The company’s sales rose 14% year-over-year in the third quarter to $7.84 billion, while earnings were up 10% on an adjusted basis to $1..40 billion. Its remaining performance obligations were 11% higher YOY to $20.9 billion, slightly less than analyst estimates. 

Bank of America analyst Brad Sills said it best about Bret Taylor leaving Salesforce.

“The departure of co-CEO Bret Taylor is unexpected, though, with COO Brian Millham in place, we do not expect disruption to sales productivity efforts which are critical to long-term margin expansion,” Investor’s Business Daily reported on Dec. 1.

This, too, will pass.

In the meantime, if you’re an aggressive investor, CRM is a buy. 

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