A massive ecosystem designed for the 21st century Just as productivity software tools like Microsoft Office have become basic staples in the workplace, something similar is happening with Salesforce’s family of cloud software for sales and service, which are designed to help an enterprise keep its customers in mind and enhanced with AI-driven insights.
Its recently added marketing and commerce segment is still going strong as well, getting a boost from the massive consumer shift toward e-commerce. And the “platform and other” segment is moving the needle in a big way as recently acquired MuleSoft and Tableau software tools help Salesforce users break down and make better sense of siloed data.
Whether to buy CRM stock often boils down to how an investor views two trends. One, rising corporate spending on digital transformation projects. And, two, Salesforce.com’s (CRM) penchant to make big acquisitions. Now there’s another factor to mull. That’s how much spending on information technology rebounds in 2021 if the coronavirus emergency eases.
Its stock surged on Aug. 26 after the enterprise software maker reported July-quarter earnings and revenue that blew past analyst estimates. With the gain, Salesforce stock closed a valuation gap with many other software growth stocks. Amid the coronavirus pandemic, demand for next-generation collaboration and productivity tools has increased as companies shifted to work-from-home arrangements.
The bar keeps rising when investors look at Salesforce’s “biggest acquisition ever.” Its purchase of Exact Target in 2013 was followed by e-commerce platform Demandware in 2016, and MuleSoft in 2018. Then Salesforce ponied up $15.7 billion in an all-stock deal to buy data analytics firm Tableau Software last year. The acquisition spree has pressured CRM stock. The deals raised questions over Salesforce’s organic growth.
In 2019, CRM stock lagged many high-growth enterprise software stocks as well as the oft-watched iShares Expanded Tech-Software ETF. Salesforce stock had been-range bound for the better part of 15 months before breaking out to a new all-time high in early 2020.
The upbeat view is that acquisitions have enabled Salesforce to expand from its roots in customer relationship management software into marketing, e-commerce and other markets.
CRM Stock: Core Business Strength an Issue
Salesforce is one of many big-cap tech stocks to watch. Started in 1999, Salesforce went public in 2004. Salesforce founder and Co-Chief Executive Marc Benioff worked at Oracle (ORCL) for 13 years before he left to start the software company.
In a surprise, co-CEO Keith Block on Feb. 25 stepped down. CRM stock fell on the news. But, analysts haven’t observed any big changes in marketing strategy since Block left.
Salesforce has been a fierce rival of Oracle and Microsoft (MSFT). Microsoft Dynamics has gained traction as a lower-priced alternative to Salesforce tools, some analysts say. Also, competition with Adobe Systems (ADBE), the digital media and marketing software firm, has been rising. Newer rivals include Zendesk (ZEN) and HubSpot (HUBS).
Further, Salesforce software helps businesses organize and handle sales operations and customer relationships as they undergo digital transformation.
San Francisco-based Salesforce sells software under a subscription model. The customers of software-as-a-service, or SaaS, companies like Salesforce purchase renewable subscriptions, rather than one-time software licenses. Customers receive automatic software updates via the web. Also, the company spends about 14% of revenue on research and development, relatively high for a software company. Increased hiring and wage inflation for software engineers also have been a headwind to margin growth.
Salesforce Stock: Fundamental Analysis
In its fiscal second quarter ended July 31, Salesforce sold its shares in Zoom Video Communications (ZM) as well as some other public companies, according to reports.
Salesforce Q2 earnings jumped 118% from a year earlier to $1.44 per share on an adjusted basis, including a 58-cent investment gain. Excluding the investment gain, adjusted profit rose 30% to 86 cents a share. In addition, revenue climbed 29% to $5.15 billion, including the acquisition of Tableau Software.
The enterprise software maker said current remaining performance obligations, or CRPO bookings, rose 26% to $15.2 billion. That topped analyst estimates of $14.05 billion. CRPO bookings are an aggregate of deferred revenue and order backlog. For the current quarter ending in October, Salesforce’s revenue outlook came in above expectations. The software maker expects October-quarter revenue in a range of $5.24 billion to $5.25 billion vs. estimates of $5.01 billion.
The company forecast earnings in a range of 73 cents to 74 cents a share. Meanwhile, analysts had projected a profit of 76 cents a share. In addition, Salesforce projected CRPO growth of 19% in the October quarter vs. analyst estimates of 14% growth to $14.53 billion.
Salesforce in 2019 agreed to buy data analytics firm Tableau for $15.7 billion in an all-stock deal. Tableau provides data visualization software. In addition, it enables customers to build databases, graphs and maps using time series analytics, a technique that analyzes a series of data points ordered in time. Also, Salesforce expects synergy between its Einstein artificial intelligence tools and Tableau’s business intelligence software.
In 2018, Salesforce bought MuleSoft for $6.5 billion in cash and stock. MuleSoft’s software automates the integration of new tools with legacy enterprise platforms and speeds application development. Meanwhile, Salesforce spent $4.6 billion on acquisitions in 2016. They included e-commerce platform Demandware. Furthermore, Salesforce’s $2.5 billion purchase of Exact Target in 2013 jump-started its move into marketing software. Bullish analysts say Salesforce AI’s tools, plus Tableau, plus MuleSoft will make a powerful combination for digital transformation projects.
CRM Stock: Technical Analysis
Further, Salesforce aims to partner with IT services firms such as Accenture (ACN) to add customers. Despite U.S.-China trade tensions, Salesforce in July added Alibaba Group (BABA) as a sales channel partner in China.
In cloud computing, Salesforce has partnered with Google for data analytics. In addition, Salesforce has expanded its venture capital investing. According to IBD Stock Checkup, CRM stock currently has a Relative Strength Rating of 92 out of a possible 99. The best stocks tend to have ratings of 80 and above.
Further, CRM stock has an Accumulation/Distribution Rating of C. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Growth now, (more) profit later
In spite of its size, the company isn’t letting its foot off the gas. CEO Marc Benioff and the executive team think revenue will increase at least 21% this year to no less than $20.7 billion — keeping its long track record of at least 20% growth per year intact for now.
Controversially, a key to the company pulling off its run (even during the pandemic and ensuing recession this year) has been acquisitions. Salesforce is a prolific acquirer of smaller software firms, which it bolts onto its existing operations. The argument against the practice often revolves around the fact that Salesforce frequently uses its stock to pay for purchases. For many tech outfits, this is a dangerous game that dilutes existing shareholders to the point that a larger pie never equates to a larger slice. Up to this point, that hasn’t been the case at Salesforce.
According to FXVC, Trends of salesforces are expected to be much higher in coming few months so salesforce can give huge profits.