Salesforce (CRM) Continues to Expand Margins with Huge Percentage Gains

Stock (Symbol)

Salesforce.com (CRM)

Stock Price

$219

Sector

Data is as of

Expected to Report

Company Description

Salesforce is a provider of customer relationship management (CRM) platform.

Its Customer 360 platform delivers a source, which connects customer data across systems, applications and devices to help companies sell, service, market and conduct commerce from anywhere.

It focuses on cloud, mobile, social, analytics and artificial intelligence, which connect to its customers and enable companies to transform their businesses.

It also enables third parties to use its platform and developer tools to create additional functionality and applications that run on its platform.

Its customers use its sales offering to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence and deliver quotes, contracts and invoices.

Its service offering helps to connect its service agents with customers across any touchpoint. It helps customers to resolve routine issues with predictions and recommendations. Source: Refinitiv

Sharek’s Take

Salesforce is the world’s leader in customer relationship management (CRM) software and connects more than 150,000 clients to their customers via the internet and stores this customer information in the cloud. The company had more than 73,000 employees as of January 31, 2022. Salesforce boasts the #1 Sales Cloud, #1 Service Cloud, #1 Marketing Cloud, #1 CRM platform, and #1 integration software in Mulesoft. The company is large but continues to grow at a healthy rate due to acquisitions including Tableau, Mulesoft, and Slack. Salesforce is a perfect fit for AI and that should bring more opportunity to grow revenue in the years ahead.

Here’s a breakdown of the company’s service offerings:

• Sales Cloud: 24% of company revenue last qtr, +12% year-over-year sales growth.
  Software to help customers in their sales process, such as storing data, monitoring leads and progress, looking at analytics, and delivering quotes contracts, and invoices.
• Service Cloud: 26% of total revenue, +12% growth yoy.
  Software for customer service teams to connect with customers anywhere via phone, email, messaging, chat, live videos, social networks, and mobile apps. This even has a field service solution for workers out in service trucks.
• Salesforce Platform: 20% of company revenue, +11% growth yoy.
  • Customer 360 — platform allows web developers to build cloud-based apps for any business need.
  • Productivity — Quip Collaboration Platform combines documents, spreadsheets, and charts with Salesforce data.
  • Communication — Slack provides direct messaging for team members in a company.
• Marketing and Commerce Cloud: 15% of company revenue, +10% growth yoy.
  This is for marketing journeys, including digital marketing and transactions across the web or that company’s app.
• Data: 15% of company revenue, +16% growth yoy.Data is a new segment for Salesforce and includes Tableau and Mulesoft.
  • Integration — MuleSoft helps customers connect to any system, application, data, or device.
  • Analytics — Tableau software lets customers analyze their business data. Tableau software, a data analytics platform, is a catalyst for the stock as the sector is in high demand. Tableau helps process data into a picture or graph, like when meteorologists use heat maps.
  • Data Cloud continues to be one of the company’s fastest-growing innovations with Data Cloud being included in 5 of the top 10 deals last qtr.

Salesforce used to be a rapid grower, and has now had its revenue growth simmer down as the company’s gotten exponentially larger. Much of Salesforece’s growh has come from acquisitions, which is fine by me. But now that the company is an Enterprise, big aquisitions might not make as much of an impact on profits. Still, analysts have 26% Estimated Long Term Growth Rate on the stock, which I think is overly optimistic. CRM doesn’t pay a dividend, but management has a stock buyback program in place. In 2022, management bought back $4 billion in stock, but since this is a software company that offers a lot of stock options for employees, shares outstanding didn’t drop much. I’m very excited about Salesforce becoming a force in AI, and will cover this more in future reports. CRM is on the radar for the Growth Portfolio. I think the stock is fairly valued here, and would be tempted to buy it if the stock were to dip due to poor stock market conditions.

One Year Chart

The one-year chart looked terrible a year ago, but now looks to be in great shape, having gained an upward momentum that began as the year started.

The Est. LTG is 26% this qtr. That’s up from 23% last quarter. Profits are good now because the company is penny-pinching. What will profit growth slow to? Maybe 15%?

The P/E of 27 is down from 29 last qtr. My Fair Value is a P/E of 28.

Qtrly profit growth looks good! Estimates as well!

Earnings Table

• Americas sales +10%, with strong business growth in Canada;
• Europe, Middle East, and Africa sales +13% or +11% in constant currency, with strong business growth in France; and
• Asia Pacific sales +20% or +24% in constant currency, with strong business growth in India.

Growth was driven by Service Cloud and Data Cloud, particularly with MuleSoft which enjoyed great business wins. Almost half of all deals greater than $1 million included MuleSoft. Einstein, the world’s first generative AI for a CRM platform, is also seeing strong customer momentum. Overall revenue growth was partially offset by continuing weakness in professional services. The company also continues to experience elongated sales cycles and deal compression. But in terms of industry verticals, manufacturing, automotive, and energy are exhibiting great resilience amid the measured macro environment. Annual recurring revenue for eight of Salesforce’s industry cloud solutions grew more than 50%. US business wins include SiriusXM , KPMG, FedEx, Schneider Electric, and PenFed. International business wins include Hargreaves Lansdown; the Department of Education in Victoria, Australia; and Banco Carrefour.

Annual Profit Estimates are up again this qtr. For 2024, management expects revenue to grow by around 11%, driven by strength in subscription and support revenue, particularly for MuleSoft.

Qtrly Profit Estimates are for 47%, 29%, 28%, and 10% profit growth in the next 4 qtrs. For next quarter, nalysts expect revenue to grow 11% once again.

Fair Value

M

The stock seems fairly valued here, with 20% upside for next year. Note, CRM has been increasing annual profit estimates.

CRM has a January 31 fiscal year-end.

Bottom Line

Salesforce (CRM) had been a solid stock this last decade.

Salesforce has done a phenomenal job cutting csts and increasing profit marggins. And the overall business environment has been good considering the sluggish economy. AI will bring great innovations to this company and its customers.

CRM is on the radar for the Growth Stock Portfolio. I’d look to add the stock on a dip in price.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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