• Salesforce has become more profitable after Starboard Value and other activists invested in the technology stock.
• But one of those activist investors, Starboard CEO Jeff Smith, now says the company can get more efficient with its spending on sales and marketing.

Salesforce shares jumped 98% in 2023 in part after the business software maker increased its adjusted operating margin after Starboard Value and other activist investors raised concerns about the company's financial performance. Starboard now sees more room for improvement.

"They've been doing a great job executing, improving their margins, moving up in the Rule of 40 or Rule of 50 for their for their industry, and we think there's a lot more to go," Starboard CEO Jeff Smith told CNBC's David Faber at the 13D Monitor Active-Passive Investor Summit in New York on Tuesday.

The Rule of 40 refers to the idea that a company's revenue growth rate and profit margin should add up to at least 40%. It became a more widely favored measurement in 2022 among software executives as share prices drifted lower, with investors worrying about central banks pushing up interest rates. For many years, many software companies prioritized fast growth at the expense of profitability.

Starboard argued in 2022 that, even as Salesforce ruled the market for customer relationship management software, it delivered a lower operating margin than some of its peers. Starboard revealed a holding in the stock and Salesforce responded by cutting thousands of employees and moving up its timeline for widening its adjusted operating margin.

Starboard had a $432 million Salesforce stake as of June 30, according to a regulatory filing.

Marc Benioff, Salesforce's co-founder, chair and CEO, has said he "enjoyed getting to know" the activist investors who invested. Mason Morfit, co-CEO of ValueAct Capital, joined Salesforce's board in March 2023. And by June 2023, most of the stock's seven activists had moved on, Amy Weaver, Salesforce's finance chief, said at a UBS event.

On Tuesday, Starboard said in a presentation that Salesforce "can continue to become more efficient and more profitable." Other large software companies spend less on sales and marketing and general and administrative costs as a percentage of revenue, and Salesforce can catch up, according to the presentation. Starboard used an aggregate of Adobe, Intuit, Microsoft, Oracle, SAP, ServiceNow and Workday for comparison.

And Starboard said Salesforce should commit to adhering to the Rule of 50 by the 2028 fiscal year. The activist firm laid out two scenarios, both of which involved Salesforce's revenue growth accelerating and its adjusted operating margin widening.

The Agentforce technology for automating customer interactions, which Salesforce discussed at its Dreamforce conference in September, has the potential to boost revenue growth, Starboard said.

Salesforce shares slipped 1% during Tuesday's trading session.

"We appreciate feedback and dialogue with our investor base. Starboard continues to be a constructive shareholder in our conversations," a Salesforce spokesperson told CNBC in an email.

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