The Growth Potential of Salesforce

Hi Everyone,  I orginally made this post on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. I encourage you to read the post on my blog as it provides graphs and pictures so you can get a better idea of this company. Company Description: Salesforce is the world’s #1 customer relationship management software (CRM) platform. Customer relationship software refers to tech solutions that help businesses manage communication with clients. A CRM tool lets you track current and potential customers, identify opportunities in terms of sales, record service problems, and manage marketing campaigns in a centralized location. The information that anyone in a given company might need is available to them through such software. So why is a CRM system so important? A CRM system helps companies collect data that is easy to understand and with that data they can learn their customer base, identify weaknesses in their company, track the progress of their goals, etc. In other words, a CRM system allows a company to stay organized. In companies both large and small it’s easy for miscommunication to happen. In the cases that a problem does happen, a CRM system would allow people to see what happened in the past as well as what potential ways they can fix the problem. These systems allow companies to integrate tools such as document signing, accounting and billing, and surveys into a neat cloud system that gives an overview of ones customer. In this post we’ll take a look at the opportunity ahead of Salesforce. While I don’t think anyone really denies that this company has a strong brand and is in an industry that is bound to grow, what exactly is the potential that Salesforce can live up to? To answer this question, we’ll take a look at CRM’s TAM opportunity, fourth quarter and full year fiscal 2021 results, recent developments, management team, risks, and future opportunities. Make sure to read to the end to get my opinion on if this company is a buy or not and my discounted cash flow analysis. Note – I use Salesforce and CRM interchangeably “We never could have predicted a year ago what was in store, which makes me incredibly proud of how well we pivoted our company to adapt to this pandemic world … We had a record quarter and year by innovating more and faster than ever, enabling our customers to be successful from anywhere, and becoming more relevant and strategic than ever. And we continued to serve all of our stakeholders in a time when they needed it most.” – Marc Benioff, CEO of Salesforce. Total Addressable Market (TAM) While looking into this companies TAM opportunity I noticed something that might throw off a lot of investors. CRM’s market capitalization is larger than their TAM. TAM relates to the revenue a company can make within a market within a given year. Market capitalization is the total value of a company that is calculated by multiplying the total number of shares outstanding by the present stock price. Market cap often trades at multiples of the revenue and that multiple ranges depending on the industry (often higher in the tech space). In other words, market cap should be thought of as discounted future cash flows. So what is CRM’s total addressable market and what is there revenue? CRM identified that their total addressable market will be $175 Billion by the year 2025 with a compounded annual growth rate (CAGR) of 11%. Their total addressable market can be segmented into sales, service, market/commerce, platform, and analytics/integration. They hold 20% market share in their industry with Oracle in the #2 spot at 5.3%. Additionally, with their acquisition of Slack (refer recent developments section) they identified their TAM opportunity growing to add another $50 billion by 2026 (currently $21 billion). When looking at revenue, they came in at $5.82 Billion which means this company has a tremendous opportunity ahead to grow. As the economy opens back up, more businesses will be looking to pay for services that Salesforce offers. Fourth Quarter and Full Year 2020 Financial Results Fourth Quarter Revenue of $5.82 Billion, up 20% Year-Over-Year, 19% in Constant Currency FY21 Revenue of $21.25 Billion, up 24% Year-Over-Year, 24% in Constant Currency Current Remaining Performance Obligation of Approximately $18.0 Billion, up 20% Year-Over-Year, 18% in Constant Currency FY21 GAAP Operating Margin of 2.1% and Non-GAAP Operating Margin of 17.7% Raises First Quarter FY22 Revenue Guidance to Approximately $5.875 Billion to $5.885 Billion, up Approximately 21% Year-Over-Year Initiates FY22 GAAP Operating Margin Guidance of Approximately 0.2% and FY22 Non-GAAP Operating Margin Guidance of Approximately 17.7% Important Points to Address Q4 revenue came in at $5.82 billion (up 20% YoY) and full year revenue of $21.25 billion (up 24% YoY). What’s impressive about this number is that even as businesses closed down due to the global health crisis, Salesforce still managed to grow their revenue double digits. When l looked into their earnings growth history, I noticed that it tends to jump around frequently in terms of percentages. Considering that Covid did have a substantial impact on revenue, we can expect that CRM will increase their revenue growth going forward. Their guidance shows us that they expect 21% revenue growth YoY for the first quarter FY22 and as more businesses open up I’d expect that number to at least reach 24% by the third quarter FY22. Also it’s important to note that although it is not shown in the graphic, CRM has consistently had revenue growth YoY. Thus, in terms of revenue this company has been performing well. CRM’s operating margin came in at 2.1% on a GAAP basis and 17.7% on a Non-GAAP basis. When looking at this number it’s important that we pay attention to the non-GAAP number as salesforce is constantly acquiring new businesses and making payments that are not permanent. Those irregular payments are not shown in the non-GAAP numbers and many of the non regular payments will translate to future growth (I talk more about this in recent developments). Although, the graphic I provided looks at GAAP operating margin and that helps us get an idea of the trend with this company. As we can see the margins of this company has bounced around quite a bit and if we exclude the impact of Covid, the trend has been generally up since 2014. While I would prefer to see a stronger trend on the upside, this company is still growing rapidly and is profitable so the trend doesn’t worry me too much for the time being. As their acquisitions play out and more businesses start to adopt Salesforce’s CRM system, we would like to see this trend go up. It’s important to note that software often times has higher margins compared to physical goods and that’s because you don’t have to continuously manufacture software but rather make updates. Those software updates cost far less than perhaps adding a new building or having to pay more for materials when looking at physical goods. When taking a look at CRM’s earnings history we can see that they consistently beat by a significant amount and perhaps that because they sandbag (provide low guidance expectations) their numbers. Thus, we can expect that they have purposely reported their non-GAAP operating margins as 17.7% (no growth) because they plan on beating it. Recent Developments/Acquisitions Slack Acquisition – On December 1st, 2020 Salesforce acquired Slack for $27.7B. Slack is a messaging workspace where team members can communicate and work together. Team members can share files and share messages in channels in order to work on anything related to the organization. Salesforce acquired Slack in order for them to offer a more full array of enterprise software to transform the way people work. Covid accelerated the work from home movement and this acquisition was a perfect match for Salesforce as companies need ways to connect their workers in a secure and fluid way. When looking at the costs of this move, this acquisition was questionable in a sense as they paid something along the lines of 19 times forward sales. Although, I think this was a great acquisition for salesforce as Slack users log in over 100 minutes daily. Additionally, Slack has over 750,000 organizations on either free or paid subscription plans, over 41,000 paid customers, and 963 customers paid over 100,000 in annual recurring revenue. Those customers are now being monetized by Salesforce and as the industry grows, the amount of recurring revenues will grow dramatically. Slack identified its total addressable market as being worth $28 billion and with the performance of Slack we can expect that they will continue to increase profits. Finally, it’s important to note that recurring revenue business models are extremely advantageous as the organization with that business model isn’t effected by changing prices in costs of production. As Salesforce grows and continues to innovate, they will leverage Slack to attract more businesses and continuously generate revenue. Tableau Acquisition – On June 10th, 2019 Salesforce acquired Tableau for $15.7 billion. Tableau is the world’s leading analytics platform with companies such as Verizon, Lenovo, Chipotle, and numerous others using its services on a daily basis. This acquisition brought together the world’s #1 CRM and #1 analytics platform together. Tableau gives users the ability to analyze their data and share it with the world. This acquisition was a great move for Salesforce as it made them one step closer to offering customers the ability to have a 360 vision of their businesses. Thus, Salesforce can offer even more value through AI methods to their customers. The downside of this acquisition is that it will take time for it to pay off but the value the deal offers is immense. Tableau has more than 57,000 customers which are now monetized by Salesforce. Similar to their Slack acquisition, CRM will sell other services to the customers they’re gaining and as more businesses adopt CRM’s services, revenue will go up. Additional acquisitions that I will not go into detail on include: Mulesoft (March 20th, 2018) – Mulesoft is a software platform that gives organizations the ability to easily build application networks using APIs. Demandware (June 1st, 2016) – Demandware provides cloud commerce solutions for retailers. ExactTarget (June 4th, 2013) – ExactTarget provides on-demand one-on-one email marketing software. ClickSoftware (August 7th, 2019) – ClickSoftware improves the effectiveness of field service organizations and mobile workforces. Krux (October 3rd, 2016) – Kruz is a software company that collects data from digital interactions. Quip (August 1st, 2016) – Quip is a document processing application. Buddy Media (June 4th, 2012) – Buddy Media is a social media marketing platform. As we can see Salesforce has done many acquisitions in order to get closer to being able to offer businesses the services that will allow them to get a complete view of their customers. These acquisitions on the one hand have been very costly but they make great additions to CRM in the long-term. It’s questionable whether all of the businesses CRM has acquired will pay off as they’re expected to, but as we will see in the next section CEO Marc Benioff understands what he’s doing. Management CRM’s management team is so large (partly due to the acquisitions) that I will not go into detail on all of the members. I encourage you to dive deeper into the management team of Salesforce to get a better idea of how this company is run. CEO – Marc Benioff Marc is the CEO of Salesforce and under his leadership he has created the #1 provider of customer relationship management software globally. Marc founded Salesforce in 1999 and was named “innovator of the Decade” by Forbes and is recognized as one of the World’s 25 Greatest Leaders by Fortune. Before launching Salesforce, he spent 13 years at Oracle Corporation (one of Salesforce’s main competitors) as Vice President. At the age of 15 he founded his first company Liberty Software which created video games. Additionally, he is a member of the World Economic Forum and has gave $250 million to the University of California to build the UCSF Benioff Children’s Hospital. What strikes me most about Marc is that not only does he have an eye of innovation but he gives back to the community. Also, he worked for one of their top competitors, Oracle, for 13 years and still managed to outpace them by starting his own company. With that being said, he has an idea of how his competitors think and how the Customer relations software industry works. After knowing what Marc has been able to accomplish, it’s no surprise that he’s acquired so many businesses. Surely Marc is thinking longterm with all the acquisitions he’s made and I expect many of them to turn out as he’s planned. President and Chief Strategy Officer – Alex Dayon Alex Dayon is the President and CSO of Salesforce. Alex has multiple patents and joined Salesforce back in 2008 through the acquisition of InStranet which he served as CEO during his time there. Before joining Salesforce, Alex was one of the founding members of Business Objects SA which he led the product group for over 10 years. In terms of education, he holds a master’s degree in electrical engineering from Ecole Supérieure d’Electricité in France. I trust that Marc surrounds himself with the best management team and Alex is a great fit to the Salesforce team. Similar to Marc, Alex founded a company and led it to success over the course of time. Alex understands the competitive landscape with which they work and I trust he’ll help lead Salesforce to newer heights. President and Chief Financial Officer – Amy Weaver Amy Waver is the President and CFO of Salesforce and is a member of the company’s executive committee which reports directly to Benioff. Prior to going Salesforce in 2013, Amy served as the Executive Vice President of Univar Solutions Inc. She also served as the Senior Vice President of Expedia Incorporated. In addition to the experience she has in finance, Amy practiced law at Cravath and multiple other law firms where she concentrated on project finance, credit agreements, joint ventures, and more. With Weavers understanding of Finance and law, she knows not only the technical aspects of finance but the legislative as well. With her as CFO I have no doubt that Salesforce will continue to be in the proper financial standing that it needs. Additional Executives not mentioned include: Parker Harris (Co- Founder), Adam Selipsky (CEO of Tableau), Brent Hyder (Chief People Officer), and more. What could go wrong Salesforce’s steep learning curve puts off potential customers – There are so many aspects to Salesforce’s services that there is a rather large learning curve. It’s been noted that a couple weeks of training is the bare minimum in order to effectively use the system. This steep learning curve could make some potential customers choose to adopt a more simple system. Although, once the system is mastered the possibilities are endless in terms of customization. Cyber-attacks – With any company the possibility of a cyber-attack is always present. For SaaS companies (software as a service) such as CRM, this risk is one that is of utmost importance because if they get hacked then customers information gets leaked. If customer information gets leaked then any potential customers will be worried that CRM is not as a reliable system as it was made out to be. Expanding services beyond CRM may fail – CRM, as shown in the recent developments section, has been expanding into other markets. For example, with their purchase of Tableau, they ventured into the analytics and integration space. Moreso, they ventured into the business communication space with Slack. Both those companies face significant competition from companies such as Microsoft (think MS Teams), Amazon Web Services, and many more. Thus, CRM is facing competition from so many fronts and while they do have $4 billion sitting in cash and cash equivalents, that may not be enough to continue expanding successfully on all their services. When you’re fighting off competition from the likes of Amazon and Microsoft, innovation needs to be kept up. What we want to see in the future Salesforce successfully implements their new acquisitions – Salesforce offers more than just customer relations management. Their acquisitions have been quite costly and if they play out as predicted we will see not only revenue grow, but margins as well. CRM is trying to offer a complete digital ecosystem including marketing, sales, analytics, communication, and more. Covid has accelerated the digital movement and as Covid becomes a thing of yesterday, we want to see CRM gain marketshare in the industries in which they’ve positioned themselves. Going forward it will be important to carefully track margins and growth of their individual businesses rather than just revenue in total. Businesses continuously adopt AI (artificial intelligence) – Salesforce implements AI into their services and as AI continues to be adopted we can expect companies to be attracted by CRM’s pace of innovation. Salesforce noted that Internal HR bots handled 83% of their total chat engagements via their Einstein Bots. Additionally, many companies us AI when modeling things such as consumer engagement or consumer product recommendations in the case of e-commerce. CRM continues to advance their AI capabilities and as that advancement occurs, we can expect potential customers to take notice and implement CRM into their businesses. Analyst expectations Predicted revenue range for 2021: $25.68 – 26.17 Billion (roughly 21.1% growth YoY) Predicted earnings per share for 2021 (EPS): $3.43 Conclusion Salesforce is a rapidly expanding customer relationship management company. They’ve innovated at an extremely rapid pace since their founding in 1999 by acquiring businesses that provide services beyond customer relationship management. While they’ve been growing rapidly, they’re also spending money just as fast. Going forward we need to pay attention not only to the growth of their original business model (CRM), but also their ventures into communication (Slack), analytics (Tableau), marketing (ExactTarget), and more. Investors may be reluctant to buy this stock as they’ve always traded at a premium as shown by their P/E ratio of 49. For me to buy this stock it would have to fall under $200 and at that point the risk/reward is attractive. (DCF calculation and sources provided on my blog: http://tedinvests.com/posts/) 

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TedInvests

Apr 15, 2021

12.14%

Change % Since Posting

232.18

Price When Posted

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Change Since Posting

CRM

Salesforce.Com Inc

260.36

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Current Price

The Growth Potential of Salesforce

bullish

Hi Everyone, 

I orginally made this post on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. I encourage you to read the post on my blog as it provides graphs and pictures so you can get a better idea of this company.

Company Description:

Salesforce is the world’s #1 customer relationship management software (CRM) platform. Customer relationship software refers to tech solutions that help businesses manage communication with clients. A CRM tool lets you track current and potential customers, identify opportunities in terms of sales, record service problems, and manage marketing campaigns in a centralized location. The information that anyone in a given company might need is available to them through such software. So why is a CRM system so important? A CRM system helps companies collect data that is easy to understand and with that data they can learn their customer base, identify weaknesses in their company, track the progress of their goals, etc. In other words, a CRM system allows a company to stay organized. In companies both large and small it’s easy for miscommunication to happen. In the cases that a problem does happen, a CRM system would allow people to see what happened in the past as well as what potential ways they can fix the problem. These systems allow companies to integrate tools such as document signing, accounting and billing, and surveys into a neat cloud system that gives an overview of ones customer.

In this post we’ll take a look at the opportunity ahead of Salesforce. While I don’t think anyone really denies that this company has a strong brand and is in an industry that is bound to grow, what exactly is the potential that Salesforce can live up to? To answer this question, we’ll take a look at CRM’s TAM opportunity, fourth quarter and full year fiscal 2021 results, recent developments, management team, risks, and future opportunities. Make sure to read to the end to get my opinion on if this company is a buy or not and my discounted cash flow analysis.

 

Note – I use Salesforce and CRM interchangeably

“We never could have predicted a year ago what was in store, which makes me incredibly proud of how well we pivoted our company to adapt to this pandemic world … We had a record quarter and year by innovating more and faster than ever, enabling our customers to be successful from anywhere, and becoming more relevant and strategic than ever. And we continued to serve all of our stakeholders in a time when they needed it most.” – Marc Benioff, CEO of Salesforce.

 

Total Addressable Market (TAM)

While looking into this companies TAM opportunity I noticed something that might throw off a lot of investors. CRM’s market capitalization is larger than their TAM. TAM relates to the revenue a company can make within a market within a given year. Market capitalization is the total value of a company that is calculated by multiplying the total number of shares outstanding by the present stock price. Market cap often trades at multiples of the revenue and that multiple ranges depending on the industry (often higher in the tech space). In other words, market cap should be thought of as discounted future cash flows.

So what is CRM’s total addressable market and what is there revenue? CRM identified that their total addressable market will be $175 Billion by the year 2025 with a compounded annual growth rate (CAGR) of 11%. Their total addressable market can be segmented into sales, service, market/commerce, platform, and analytics/integration. They hold 20% market share in their industry with Oracle in the #2 spot at 5.3%. Additionally, with their acquisition of Slack (refer recent developments section) they identified their TAM opportunity growing to add another $50 billion by 2026 (currently $21 billion). When looking at revenue, they came in at $5.82 Billion which means this company has a tremendous opportunity ahead to grow. As the economy opens back up, more businesses will be looking to pay for services that Salesforce offers.

 

Fourth Quarter and Full Year 2020 Financial Results

  • Fourth Quarter Revenue of $5.82 Billion, up 20% Year-Over-Year, 19% in Constant Currency
  • FY21 Revenue of $21.25 Billion, up 24% Year-Over-Year, 24% in Constant Currency
  • Current Remaining Performance Obligation of Approximately $18.0 Billion, up 20% Year-Over-Year, 18% in Constant Currency
  • FY21 GAAP Operating Margin of 2.1% and Non-GAAP Operating Margin of 17.7%
  • Raises First Quarter FY22 Revenue Guidance to Approximately $5.875 Billion to $5.885 Billion, up Approximately 21% Year-Over-Year
  • Initiates FY22 GAAP Operating Margin Guidance of Approximately 0.2% and FY22 Non-GAAP Operating Margin Guidance of Approximately 17.7%

Important Points to Address

  • Q4 revenue came in at $5.82 billion (up 20% YoY) and full year revenue of $21.25 billion (up 24% YoY). What’s impressive about this number is that even as businesses closed down due to the global health crisis, Salesforce still managed to grow their revenue double digits. When l looked into their earnings growth history, I noticed that it tends to jump around frequently in terms of percentages. Considering that Covid did have a substantial impact on revenue, we can expect that CRM will increase their revenue growth going forward. Their guidance shows us that they expect 21% revenue growth YoY for the first quarter FY22 and as more businesses open up I’d expect that number to at least reach 24% by the third quarter FY22. Also it’s important to note that although it is not shown in the graphic, CRM has consistently had revenue growth YoY. Thus, in terms of revenue this company has been performing well.
 
  • CRM’s operating margin came in at 2.1% on a GAAP basis and 17.7% on a Non-GAAP basis. When looking at this number it’s important that we pay attention to the non-GAAP number as salesforce is constantly acquiring new businesses and making payments that are not permanent. Those irregular payments are not shown in the non-GAAP numbers and many of the non regular payments will translate to future growth (I talk more about this in recent developments). Although, the graphic I provided looks at GAAP operating margin and that helps us get an idea of the trend with this company. As we can see the margins of this company has bounced around quite a bit and if we exclude the impact of Covid, the trend has been generally up since 2014. While I would prefer to see a stronger trend on the upside, this company is still growing rapidly and is profitable so the trend doesn’t worry me too much for the time being. As their acquisitions play out and more businesses start to adopt Salesforce’s CRM system, we would like to see this trend go up. It’s important to note that software often times has higher margins compared to physical goods and that’s because you don’t have to continuously manufacture software but rather make updates. Those software updates cost far less than perhaps adding a new building or having to pay more for materials when looking at physical goods. When taking a look at CRM’s earnings history we can see that they consistently beat by a significant amount and perhaps that because they sandbag (provide low guidance expectations) their numbers. Thus, we can expect that they have purposely reported their non-GAAP operating margins as 17.7% (no growth) because they plan on beating it.

 

Recent Developments/Acquisitions

  • Slack Acquisition – On December 1st, 2020 Salesforce acquired Slack for $27.7B. Slack is a messaging workspace where team members can communicate and work together. Team members can share files and share messages in channels in order to work on anything related to the organization. Salesforce acquired Slack in order for them to offer a more full array of enterprise software to transform the way people work. Covid accelerated the work from home movement and this acquisition was a perfect match for Salesforce as companies need ways to connect their workers in a secure and fluid way. When looking at the costs of this move, this acquisition was questionable in a sense as they paid something along the lines of 19 times forward sales. Although, I think this was a great acquisition for salesforce as Slack users log in over 100 minutes daily. Additionally, Slack has over 750,000 organizations on either free or paid subscription plans, over 41,000 paid customers, and 963 customers paid over 100,000 in annual recurring revenue. Those customers are now being monetized by Salesforce and as the industry grows, the amount of recurring revenues will grow dramatically. Slack identified its total addressable market as being worth $28 billion and with the performance of Slack we can expect that they will continue to increase profits. Finally, it’s important to note that recurring revenue business models are extremely advantageous as the organization with that business model isn’t effected by changing prices in costs of production. As Salesforce grows and continues to innovate, they will leverage Slack to attract more businesses and continuously generate revenue.

 

  • Tableau Acquisition – On June 10th, 2019 Salesforce acquired Tableau for $15.7 billion. Tableau is the world’s leading analytics platform with companies such as Verizon, Lenovo, Chipotle, and numerous others using its services on a daily basis. This acquisition brought together the world’s #1 CRM and #1 analytics platform together. Tableau gives users the ability to analyze their data and share it with the world. This acquisition was a great move for Salesforce as it made them one step closer to offering customers the ability to have a 360 vision of their businesses. Thus, Salesforce can offer even more value through AI methods to their customers. The downside of this acquisition is that it will take time for it to pay off but the value the deal offers is immense. Tableau has more than 57,000 customers which are now monetized by Salesforce. Similar to their Slack acquisition, CRM will sell other services to the customers they’re gaining and as more businesses adopt CRM’s services, revenue will go up.

Additional acquisitions that I will not go into detail on include:

  1. Mulesoft (March 20th, 2018) – Mulesoft is a software platform that gives organizations the ability to easily build application networks using APIs.
  2. Demandware (June 1st, 2016) – Demandware provides cloud commerce solutions for retailers.
  3. ExactTarget (June 4th, 2013) – ExactTarget provides on-demand one-on-one email marketing software.
  4. ClickSoftware (August 7th, 2019) – ClickSoftware improves the effectiveness of field service organizations and mobile workforces.
  5. Krux (October 3rd, 2016) – Kruz is a software company that collects data from digital interactions.
  6. Quip (August 1st, 2016) – Quip is a document processing application.
  7. Buddy Media (June 4th, 2012) – Buddy Media is a social media marketing platform.

As we can see Salesforce has done many acquisitions in order to get closer to being able to offer businesses the services that will allow them to get a complete view of their customers. These acquisitions on the one hand have been very costly but they make great additions to CRM in the long-term. It’s questionable whether all of the businesses CRM has acquired will pay off as they’re expected to, but as we will see in the next section CEO Marc Benioff understands what he’s doing.

Management

CRM’s management team is so large (partly due to the acquisitions) that I will not go into detail on all of the members. I encourage you to dive deeper into the management team of Salesforce to get a better idea of how this company is run.

CEO – Marc Benioff

Marc is the CEO of Salesforce and under his leadership he has created the #1 provider of customer relationship management software globally. Marc founded Salesforce in 1999 and was named “innovator of the Decade” by Forbes and is recognized as one of the World’s 25 Greatest Leaders by Fortune. Before launching Salesforce, he spent 13 years at Oracle Corporation (one of Salesforce’s main competitors) as Vice President. At the age of 15 he founded his first company Liberty Software which created video games. Additionally, he is a member of the World Economic Forum and has gave $250 million to the University of California to build the UCSF Benioff Children’s Hospital. What strikes me most about Marc is that not only does he have an eye of innovation but he gives back to the community. Also, he worked for one of their top competitors, Oracle, for 13 years and still managed to outpace them by starting his own company. With that being said, he has an idea of how his competitors think and how the Customer relations software industry works. After knowing what Marc has been able to accomplish, it’s no surprise that he’s acquired so many businesses. Surely Marc is thinking longterm with all the acquisitions he’s made and I expect many of them to turn out as he’s planned.

President and Chief Strategy Officer – Alex Dayon

Alex Dayon is the President and CSO of Salesforce. Alex has multiple patents and joined Salesforce back in 2008 through the acquisition of InStranet which he served as CEO during his time there. Before joining Salesforce, Alex was one of the founding members of Business Objects SA which he led the product group for over 10 years. In terms of education, he holds a master’s degree in electrical engineering from Ecole Supérieure d’Electricité in France. I trust that Marc surrounds himself with the best management team and Alex is a great fit to the Salesforce team. Similar to Marc, Alex founded a company and led it to success over the course of time. Alex understands the competitive landscape with which they work and I trust he’ll help lead Salesforce to newer heights.

President and Chief Financial Officer – Amy Weaver

Amy Waver is the President and CFO of Salesforce and is a member of the company’s executive committee which reports directly to Benioff. Prior to going Salesforce in 2013, Amy served as the Executive Vice President of Univar Solutions Inc. She also served as the Senior Vice President of Expedia Incorporated. In addition to the experience she has in finance, Amy practiced law at Cravath and multiple other law firms where she concentrated on project finance, credit agreements, joint ventures, and more. With Weavers understanding of Finance and law, she knows not only the technical aspects of finance but the legislative as well. With her as CFO I have no doubt that Salesforce will continue to be in the proper financial standing that it needs.

Additional Executives not mentioned include: Parker Harris (Co- Founder), Adam Selipsky (CEO of Tableau), Brent Hyder (Chief People Officer), and more.

What could go wrong

Salesforce’s steep learning curve puts off potential customers – There are so many aspects to Salesforce’s services that there is a rather large learning curve. It’s been noted that a couple weeks of training is the bare minimum in order to effectively use the system. This steep learning curve could make some potential customers choose to adopt a more simple system. Although, once the system is mastered the possibilities are endless in terms of customization.

Cyber-attacks – With any company the possibility of a cyber-attack is always present. For SaaS companies (software as a service) such as CRM, this risk is one that is of utmost importance because if they get hacked then customers information gets leaked. If customer information gets leaked then any potential customers will be worried that CRM is not as a reliable system as it was made out to be.

Expanding services beyond CRM may fail – CRM, as shown in the recent developments section, has been expanding into other markets. For example, with their purchase of Tableau, they ventured into the analytics and integration space. Moreso, they ventured into the business communication space with Slack. Both those companies face significant competition from companies such as Microsoft (think MS Teams), Amazon Web Services, and many more. Thus, CRM is facing competition from so many fronts and while they do have $4 billion sitting in cash and cash equivalents, that may not be enough to continue expanding successfully on all their services. When you’re fighting off competition from the likes of Amazon and Microsoft, innovation needs to be kept up.

What we want to see in the future

Salesforce successfully implements their new acquisitions – Salesforce offers more than just customer relations management. Their acquisitions have been quite costly and if they play out as predicted we will see not only revenue grow, but margins as well. CRM is trying to offer a complete digital ecosystem including marketing, sales, analytics, communication, and more. Covid has accelerated the digital movement and as Covid becomes a thing of yesterday, we want to see CRM gain marketshare in the industries in which they’ve positioned themselves. Going forward it will be important to carefully track margins and growth of their individual businesses rather than just revenue in total.

Businesses continuously adopt AI (artificial intelligence) – Salesforce implements AI into their services and as AI continues to be adopted we can expect companies to be attracted by CRM’s pace of innovation. Salesforce noted that Internal HR bots handled 83% of their total chat engagements via their Einstein Bots. Additionally, many companies us AI when modeling things such as consumer engagement or consumer product recommendations in the case of e-commerce. CRM continues to advance their AI capabilities and as that advancement occurs, we can expect potential customers to take notice and implement CRM into their businesses.

Analyst expectations

  1. Predicted revenue range for 2021: $25.68 – 26.17 Billion (roughly 21.1% growth YoY)
  2. Predicted earnings per share for 2021 (EPS): $3.43

Conclusion

Salesforce is a rapidly expanding customer relationship management company. They’ve innovated at an extremely rapid pace since their founding in 1999 by acquiring businesses that provide services beyond customer relationship management. While they’ve been growing rapidly, they’re also spending money just as fast. Going forward we need to pay attention not only to the growth of their original business model (CRM), but also their ventures into communication (Slack), analytics (Tableau), marketing (ExactTarget), and more. Investors may be reluctant to buy this stock as they’ve always traded at a premium as shown by their P/E ratio of 49. For me to buy this stock it would have to fall under $200 and at that point the risk/reward is attractive.

(DCF calculation and sources provided on my blog: http://tedinvests.com/posts/

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read-time
12 min

400.00

Target Price

8/ 10

Confidence

1-3 Years

Timeframe
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Earnings Per Share
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Financials
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Management
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Price to Earnings Ratio
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Dividend
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