Salesforce.com (CRM) Last Update 8/30/21
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% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Salesforce.com
$301.79
Yours
Trefis Price
N/A
$290
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Salesforce.com Company

VALUATION HIGHLIGHTS

  1. Cloud Based CRM Software constitutes 52% of the Trefis price estimate for Salesforce.com's stock.
  2. Cloud Software constitutes 46% of the Trefis price estimate for Salesforce.com's stock.

WHAT HAS CHANGED?

  1. Latest Earnings
For Q2 2022 (ended Jul 2021) the company's revenue were recorded at $6.3 billion, up by 23% y-o-y. Subscription and support revenues were $5.9 billion, an increase of 22% y-o-y. Q2 FY22 GAAP Operating Margin was 5.2% and Non-GAAP Operating Margin was 20.4%. Remaining Performance Obligation of Approximately $36.2 billion, up 18% y-o-y.

  1. Impact of Coronavirus
IT software and Services industries are suffering from a fall in demand for software and web services as consumers are focusing solely on essentials and not discretionary products. That said, the industry has seen companies with a portfolio of software as well as services aimed at remote collaboration benefit due to the growing number of people globally. Many companies are also operating with employees working remotely from their own home. Salesforce didn't get impacted much in terms of revenue in as the company's offerings are cloud based.

  1. Tableau Acquisiton
On June 10, 2019 Salesforce.com, the global leader in CRM, and Tableau Software, a leading analytics platform, entered into a definitive agreement under which Salesforce will acquire Tableau in an all-stock transaction, post which each share of Tableau Class A and Class B common stock will be exchanged for 1.103 shares of Salesforce common stock, representing an enterprise value of $15.7 billion (net of cash), based on the trailing 3-day volume weighted average price of Salesforce's shares as of June 7, 2019. This converts to approximately $170 worth of Salesforce.com's shares for each share of Tableau.

  1. AI Platform, Einstein To Enable CRM To Achieve Sales Target of $23 billion by 2022

Salesforce.com aims to achieve revenue of $26-28 billion by fiscal year 2023 driven by the technological revolution that includes the demand for artificial intelligence and machine learning. To achieve this, the company has introduced the next generation of its AI platform, Einstein, to unlock deeper customer insights and deliver a transformational customer experience. The platform now provides over 6 billion predictions and insights to Salesforce's customers daily. We expect the AI platform to augment the company's growth in the coming years and enable it to achieve the revenue target on or ahead of plan.

  1. Strategic Partnerships Will Boost Top-line Growth

Salesforce.com has extended its strategic alliance with Google to deepen the integration between the company's Marketing Cloud and Google Analytics 360. The initiative has been witnessing positive feedback from customers. Further, Salesforce Commerce Cloud continues to be the fastest growing enterprise commerce solution and is delivering solid results. The company recently acquired CloudCraze, the leader in B2B commerce, to offer a single platform that can be used for both B2B and B2C experiences by Salesforce's clients. All these initiatives are likely to boost the company's top-line as well as valuation in the near term.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Salesforce.com's value that present opportunities for upside or downside to the current Trefis price estimate for Salesforce.com:

Cloud-based Customer Relationship Management (CRM) Software

  • Cloud Based CRM Software Revenue: Salesforce.com's CRM market share has increased at a brisk pace post the economic crash in 2008-09. We believe that Salesforce.com will benefit from the fast growth of cloud computing CRM market. The favorable factors for this tremendous growth are speed and ease of implementation and low total cost of ownership and thus boost revenues from CRM Software. There could be an upside of about 7% to our estimate for Salesforce.com if its revenue increases at a faster rate to cross $50 billion by the end of Trefis forecast period. On the other hand, there could be a 13% downside to our estimate for Salesforce.com if its revenue just reaches $30 billion by the end of Trefis forecast period.

Cloud Software Revenue

  • Salesforce's Cloud Software market revenue: The overall cloud-based software market is expected to grow at a fast rate. Salesforce.com continues to grow in this market organically, as well as through the acquisition route. It has launched a series of new cloud-based software applications like Chatter, Database.com, Data.com, Do.com, Desk.com, and Heroku. It also generates revenues from its application platform Salesforce1 and marketplace AppExchange. There could be a good upside if our estimate for Salesforce.com's Cloud Software revenue increases at a faster pace and reaches $50 billion by end of the forecast period. However, we believe Salesforce needs to pursue an inorganic growth strategy to be able to attain that.

For additional details, select a driver above or select a division from the interactive Trefis split for Salesforce.com at the top of the page.

BUSINESS SUMMARY

Salesforce.com offers customer relationship management (CRM) software, including sales and customer service software, as well as other cloud-based application, database and platform software to businesses. CRM software helps companies better manage customer data and information, which helps those companies to better serve their customers and increase sales. Salesforce.com's software is delivered remotely to its customers over the internet (from the "cloud"), making Salesforce.com one of the leading companies in the cloud-software space.

Cloud-based CRM software

Salesforce.com uses cloud-based software to give its customers access to online software, with minor implementation and no on-premise installation or maintenance of software or physical servers.

Salesforce.com makes money mainly through subscription and support fees associated with its customers using Salesforce's applications. These applications give Salesforce.com's customers access to systems which can systematically record, store, and act upon business data. These applications are used to optimize different aspects of a company's business including sales, marketing, partnerships and customer service. The company’s CRM services primarily focus on sales-force automation, marketing automation, and customer service and support automation. In addition, it provides consulting and implementation services and training.

Salesforce.com is heavily invested in cloud-based application services and derived over 90% of its fiscal 2017 revenue from subscription and support fees associated with cloud services.

Other cloud based software

In addition to cloud-based CRM software, Salesforce has a long-term opportunity to deliver other types of cloud-based software and services as corporate IT departments leverage cloud-based software instead of investing in additional hardware and on-premise software. The cloud computing market consists of Software as a service (SaaS), Platform as a service (PaaS) and Infrastructure as a service (IaaS).

Salesforce.com offers Force.com, which is the application development development platform for corporates' IT departments and independent developers. It also offers AppExchange, which is an online directory that provides customers a way to browse, test-drive, share and install applications developed on Force.com platform.

It has also launched a series of other cloud based applications and services, including Chatter, an enterprise social network; Database.com, a cloud-based database offering; Data.com, a platform for sales professionals; Desk.com, a social customer support service, and Heroku, a Ruby application platform. It also launched the Radian6 Social Marketing cloud recently. In 2013, Salesforce acquired ExactTarget, a cloud-based digital marketing company, for $2.5 billion. With ExactTarget, Salesforce intends to transform into a complete cloud based company that caters to every industry.

SOURCES OF VALUE

Cloud-Based Customer Software is Salesforce.com's core and most valuable business. The division's value depends heavily on three main factors:

1. Growth in the Size of the CRM Software Market

The CRM software market consists of two types of software: (1) On-Premise Software, (2) On-Demand (Cloud-Based) Software.

  • On-Premise Software is the traditional enterprise software model, which requires each customer to install, configure, manage and maintain the software on their in-house hardware.
  • On-Demand (Cloud-Based) Software is delivered remotely over the Internet on an as-needed basis with little or no implementation services required and without the need to install and manage third-party software in-house.

The overall CRM market has rapidly grown over the years. Salesforce.com has been the undisputed market leader for many years now and currently commands around 21-22% of the market share, which is more than double that of the nearest competitor.

2. Salesforce.com's Growing Share in the CRM Software Market

Salesforce.com has been increasing its share in the CRM market at a consistent rate for the last few years. During the recessionary period between 2008-10, Salesforce was able to maintain its market share at around 10.5% despite the challenging IT environment. Subsequently, it's market share has increased from 10.6% in 2010 to about 22% in 2018. This growth is attributable in large part to the shift from on-premise CRM software to cloud-based CRM software globally from IT enterprises, which benefits Salesforce.com. Going forward, we expect Salesforce to continue with its strategy of investing heavily into sales & marketing and R&D activities to support a strong, double digit top line growth rate.

3. Cloud-based software suites that complement its CRM offering

Salesforce's additional offerings comprising of development tools and data management suites provide a holistic product portfolio for small business and should complement the company's strong top line growth rate in the future.

KEY TRENDS

On-going Shift to Software-as-a-Service (SaaS)

Software as a Service (SaaS) is a subscription-based service where companies can access software online and pay only for the functionality utilized. This is often a cost effective solution for companies, and suits small and medium enterprises more, as they have low IT budgets. In this model, the software is generally hosted on the service provider's servers from where it can be easily accessed by users. As such, businesses can save heavily on costs and time involved with purchase and implementation of expensive software. We forecast an increasing trend towards "Software as a Service" adoption.

Corporate Confidence in Data Security for Software-as-a-Service Applications

Large enterprises are sometimes reluctant to use cloud services over data security concerns. Since data in cloud-based software resides outside the company, the company must have confidence in the security of the data and the reliability of the data storage. For example, according to GTRA research, 75% of large companies feared cloud computing security breaches. However, cost considerations are forcing large enterprises to shed their existing on-premise deployments for leaner SaaS deployments that come without any hefty hardware costs. Going forward, we expect the number of SaaS deployments across business verticals to expand.