Salesforce stock (NYSE: CRM) has lost roughly 41% YTD, as compared to the 20% drop in the S&P500 over the same period. Further, at its current price of $150 per share, it is trading 33% below its fair value of $224 – Trefis’ estimate for Salesforce’s valuation. The company surpassed the consensus estimates in the second quarter of FY 2023 (FY Feb-Jan), with revenues increasing by 22% y-o-y to $7.72 billion. It was due to a 21% rise in the subscription & support revenues and a 35% jump in professional services & other revenues. The growth in the subscription and support segment was driven by a 15% increase in sales cloud, 14% in service cloud, 17% in marketing & commerce cloud, a 53% jump in platform & other, and a 12% rise in data sub-segments. Notably, the platform & other division includes a $376 million contribution from Slack Technologies. On the flip side, the GAAP net income declined 87% y-o-y to $68 million, primarily due to higher operating expenses as a % of revenues and lower gain on strategic investments.
The company’s top line increased 23% y-o-y to $15.1 billion in the first half of FY 2023. It was mainly driven by a 54% growth in platform & other, followed by a 16% rise in both the sales and service cloud divisions. On the cost front, the cost of revenues and operating expenses increased in the first half of the year. Further, the gain on strategic investments decreased from $814 million to $52 million. Altogether, it led to a 90% y-o-y drop in the adjusted net income to $96 million.
Moving forward, CRM has reduced the revenue guidance for Q3 due to a tough macroeconomic scenario. It expects the revenues to remain in the range of $7.82-$7.83 billion in the third quarter. All in all, Trefis estimates Salesforce’s revenues to touch $31.06 billion in FY2023. Additionally, CRM’s revenue per share (RPS) is likely to remain at around $30.94. This coupled with a P/S multiple of just above 7x will lead to the valuation of $224.
|S&P 500 Return||-4%||-20%||70%|
|Trefis Multi-Strategy Portfolio||-4%||-19%||220%|
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 Month-to-date and year-to-date as of 9/21/2022
 Cumulative total returns since the end of 2016