Salesforce (CRM) is an American cloud-based software company that offers customer relationship management services. The company is also focused on customer service, analytics, application development, and marketing automation. It is headquartered in San Francisco, California.
I am bullish on Salesforce. Its near-unanimous support from Wall Street analysts and massive upside relative to its consensus price target are justified by its discount to historical valuation multiples and strong growth outlook.
Strengths
Salesforce's CRM services comprise several categories, including Sales Cloud, Commerce Cloud, Data Cloud, Service Cloud, Marketing Cloud, Manufacturing Cloud, App Cloud, Analytics Cloud, Community Cloud, Vaccine Cloud, Work.com, and IoT. The company has over 150,000 customers and more than 20,000 employees.
The company has developed incredibly useful tools and platforms and made many strategic alliances, partnerships, and acquisitions. In 2014, the company launched its Customer Success Platform to integrate with its sales, marketing, mobile apps, analytics, and community services.
In 2017, it introduced the Facebook Analytics tool for business to business marketers. It also formed a partnership with Apple to improve its business apps in 2018 and acquired Slack in 2020 for $27.7 billion.
Recent Results
Salesforce generated revenue of $6.86 billion in the third quarter of 2022, which shows an increase of 27% year-over-year. The Subscription and Support segment saw revenues of $6.38 billion in the quarter, an increase of 25% from the same period in the previous year. Professional service and other revenues totaled $0.48 billion, showing a rise of 45% from September 30, 2020.
Salesforce's GAAP operating margin was 0.6% in the third quarter. GAAP earnings were $0.47 (diluted) per share. The company generated $0.40 billion of cash from operations, up 19% on a year-over-year basis. Total cash, cash equivalents, and marketable securities amounted to $9.39 billion as of September 30, 2021.
The company has announced fourth-quarter FY22 revenue guidance, which is expected to be between $7.224 billion and $7.234 billion, an increase of 24% from the previous year's quarter. For the entire fiscal year 2022, Salesforce raised its revenue guidance to between $26.39 billion and $26.40 billion, up approx. 24% per year.
Valuation Metrics
CRM stock looks pretty attractive right now as its forward enterprise-value-to-EBITDA ratio is 27.9x compared to its five-year average multiple of 28.8x. Its forward price-to-normalized-earnings ratio is 61.4x compared to its five-year average multiple of 63.1x. In addition, Salesforce is expected to grow revenue and EBITDA by over 20% in the next 12 months.
Wall Street's Take
Turning to Wall Street, Salesforce has a Strong Buy consensus rating, based on 24 Buys and two Holds assigned in the past three months. The average Salesforce price target of $340.63 implies 33.8% upside potential.
Summary and Conclusion
Salesforce is a leader in a fast-growing field, leading to consistently strong growth numbers and strong shareholder returns over time. Moving forward, the stock continues to have a bullish outlook as it is trading at a discount to its historical averages.
It enjoys strong backing from Wall Street analysts, has substantial upside potential, and has meaningful growth projected over the next year for both its top and bottom lines. As a result, I am bullish on the stock.
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Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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