I am thinking of just putting in caulking such as Alex Plus, or spackling but spackling may not be waterproof. I am going to be putting up long water blocking shower guards, so water probably won't go there anyways. Any other compounds I could use there?
Back up and take another picture so we can get a better idea why this is happening.
Got a real mess there, there's no patching that.
It needs to be cut out and replaced.
PS there's no such thing as waterproof sheetrock, it moisture resistant.
If someone's not using the the shower curtain right or it's mounted to far out this is going to continue to happen.