How Much Could Salesforce’s Valuation Multiples Expand?

Salesforce (NYSE: CRM) is a leader in the customer relationship management market. The company’s enterprise cloud services have benefited from the industry-wide trend of cloud adoption in recent years, leading to massive growth. Salesforce’s industry leading growth of 25+% over the last few years is likely to continue on the back of the company’s Mulesoft acquisition and traction from Einstein (the company’s AI module). Due to its strong market position and growth potential, we believe that Salesforce’s valuation multiples – and specifically its revenue multiple – can expand going forward, leading to around a 10% upside to the current stock price.

Our interactive dashboard on Salesforce’s Price Estimate details our upside scenario, in which Salesforce’s stock could be worth as much as $174 per share. This is over 20% ahead of the current market price, and just over 10% ahead of our base case price estimate. You can modify the key drivers to visualize the impact on the company’s valuation.

Salesforce’s cloud offerings help customers speed up and improve their sales and decision-making processes, and it continues to innovate and launch new products. This has led to increasing adoption of the company’s products. During its September 2018 Investor Day, Salesforce disclosed that its total addressable market (TAM) estimate expanded to $140 billion for 2022.

Salesforce’s growth is also likely to get a boost from the acquisition of Mulesoft, a platform for building application networks. Salesforce expects that the Mulesoft acquisition will add $315 million to its guided revenue of $13.125-13.175 billion. In addition to contributing $122 million to second quarter revenues, per management, Mulesoft has become an important component of sales discussions.

Overall, if Salesforce’s growth does come in at the higher end of the guided range, we believe there could be scope for expansion in the company’s revenue multiple, and thus an upside from the current market price.

Do not agree with our forecast? Create your own price forecast for Salesforce.com by changing the base inputs (blue dots) on our interactive dashboard.