The workplace is going digital. Here is the break down of $CRM otherwise known as Salesforce.
Current Price: $243.51
52/Wk High: $284.50
52/Wk Low: $187.37
Market Cap: $225.5 Billion
3 Month Performance: 3.97%
Read below for the break down!
Salesforce ($CRM) is a leading customer relationship management platform that offers customers a cloud-based suite of applications that cover a bevy of focuses including sales, service, commerce, engagement, platform, and marketing.
Salesforce was founded in 1999 by four founders including current Chair and CEO Marc Benioff. Before founding Salesforce, Benioff worked at Oracle for thirteen years as Vice President of the company.
The management team is made of leaders with prior experience from the likes of Univar Solutions, Expedia, InStranet, Gap, Quip, Facebook, Velocity, Oracle, and more.
In recent news, Salesforce completed the acquisition of Slack for a combined $27.7 billion. The deal was a cash and stock deal, with Slack shareholders receiving $26.79 in cash and 0.0776 shares of Salesforce stock per share of Slack.
Leadership was upbeat about the completion of the deal.
"We couldn't be more excited to have Slack as part of the Salesforce family, combining the #1 CRM and the trailblazing digital platform for the work anywhere world," CEO Marc Benioff said.
Looking into the effects of the Slack deal, analysts were positive.
“We see significant strategic rationale in the combination, as Slack could enable teams to use all of their Salesforce clouds through Slack's chat-based user interface -- helping Salesforce build a business operating system,” Macquarie Capital said (Barrons.com).
Furthermore, Salesforce announced the pricing of $8 billion in senior notes on June 29th. According to the company, the funding will be used partially for Slack acquisition costs and the refinancing or financing of social and green projects.
Breaking down Salesforce’s stock by segment, 50.3% of the stock price is based on the company’s Cloud-Based CRM Software segment.
Sifting further through the stock, 42.5% is based on the Cloud Software segment, 6.3% cash, and 0.9% Consulting and Services.
Digging into the numbers, Salesforce beat Q1 2022 expectations with an EPS of $1.21, better than the analyst’s EPS consensus estimate of $0.89. On a year-over-year basis, EPS improved by 72.86%.
On the revenues front, Salesforce delivered $5.96 billion in total revenue, representing a 23% improvement on a year-over-year basis.
Exploring revenues, Subscription, and support revenue totaled $5.54 billion throughout the quarter, representing a 21% acceleration year-over-year. Lastly, Professional services and other revenues totaled $0.43 billion, representing a significant improvement of 47% year-over-year.
Margins remained solid as well, with non-GAAP operating margin landing at 20.2% and GAAP operating margin landing at 5.9%.
Shifting into profits, gross profit totaled $4.408 billion in Q1, representing a significant improvement over the lower $3.611 billion in Q1 2021.
Income continued to improve significantly. The company reported $354 million in income from operations and $469 million in net income, both of which are over three times more than the previous year's levels.
While revenues, profits, and income continued to improve, costs increased as well, with Salesforce reporting $1.555 billion in costs of revenue. For comparison, cost of revenue totaled $1.254 billion in Q1 2021.
Rounding out the quarter, cash flows continued to improve with net cash provided by operating activities totaling $3.228 billion. For reference, the Q1 2021 level was $1.859 billion.
Finally, free cash flow (FCF) totaled $3.057 billion throughout the quarter, representing a sizable improvement over the Q1 2021 FCF level of $1.536 billion.
Leadership was positive about the quarter.
“We believe our Customer 360 platform is proving to be the most relevant technology for companies accelerating out of the pandemic,” Benioff said.
Looking to the future, management raised the bar and increased Q2 revenue expectations to a range of $6.22 billion to $6.23 billion. If the company’s Q2 revenue targets are hit, revenues will have expanded by 21%.
Projecting further, FY2022 revenue is expected to land within a range of $25.9 billion to $26.0 billion, representing 22% revenue growth year-over-year if targets are met.
Shifting into the balance sheet the numbers are solid.
Total Debt: $2.672 Billion
Total Liabilities: $22.318 Billion
Total Assets: $64.885 Billion
Cash & Short Term Inv: $15.023 Billion
On a valuation basis, Salesforce does trade at a premium.
Price to Earnings: 50.68x
Forward Price to Earnings: 56.59x
Price to Sales: 10.09x
Price to Book: 5.27x
Price to Cash Flow: 49.53x
Management has been effective.
Return on Equity: 11.58%
Return on Assets: 7.54%
Return on Invested Capital: 9.88%
Given the numbers the analysts are bullish with a mean price target of $279.23/share, representing a 14.67% upside.
The high price target is $320.00/share, representing a 31.41% gain while the low price target is $200.00/share, representing a -17.87% downside.
The big money is quite involved with 76.78% of Salesforce being owned by institutions. Top holders include The Vanguard Group, Fidelity Management & Research, and T. Rowe Price Associates.
On a technical basis, Salesforce could be presenting an opportunity. According to the six-month charts, the MACD is moving with slight downside momentum within a tight range around 1.44.
The six-month charts are also indicating an RSI of 50.96 and CCI of -3.80, both of which are trending downward.
Investigating investor sentiment the bears believe competition will stifle the company’s growth and that Salesforce overpaid for Slack. On the other hand, bulls believe the Slack acquisition will drive significant growth given the 360-degree workplace approach.
In short, Salesforce ($CRM) is a strong long-term pick with expanding revenues, profits, income, and cash flows coupled with an excellent management team and a strong balance sheet.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.