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In the wake of Salesforce, Inc.’s (NYSE:CRM) latest US$13b market cap drop, institutional owners may be forced to take severe actions

To get a sense of who is truly in control of Salesforce, Inc. ( NYSE:CRM ), it is important to understand the ownership... Read More...

To get a sense of who is truly in control of Salesforce, Inc. (NYSE:CRM), it is important to understand the ownership structure of the business. With 79% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors saw their holdings value drop by 9.3% last week. The recent loss, which adds to a one-year loss of 51% for stockholders, may not sit well with this group of investors. Institutions or “liquidity providers” control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. Hence, if weakness in Salesforce’s share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of Salesforce.

See our latest analysis for Salesforce

ownership-breakdown

What Does The Institutional Ownership Tell Us About Salesforce?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Salesforce does have institutional investors; and they hold a good portion of the company’s stock. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone since institutions make bad investments sometimes, just like everyone does. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Salesforce, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don’t have many shares in Salesforce. Our data shows that The Vanguard Group, Inc. is the largest shareholder with 8.1% of shares outstanding. BlackRock, Inc. is the second largest shareholder owning 6.9% of common stock, and State Street Global Advisors, Inc. holds about 4.5% of the company stock. In addition, we found that Marc Benioff, the CEO has 2.8% of the shares allocated to their name.

Our studies suggest that the top 25 shareholders collectively control less than half of the company’s shares, meaning that the company’s shares are widely disseminated and there is no dominant shareholder.

Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Salesforce

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Shareholders would probably be interested to learn that insiders own shares in Salesforce, Inc.. The insiders have a meaningful stake worth US$4.1b. we sometimes take an interest in whether they have been buying or selling.

General Public Ownership

With a 18% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Salesforce. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with Salesforce , and understanding them should be part of your investment process.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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