Salesforce Stock Is Trading Below Its Fair Value

+23.30%
Upside
242
Market
298
Trefis
CRM: Salesforce logo
CRM
Salesforce

Salesforce stock (NYSE: CRM) has gained 35% YTD, as compared to the 2% rise in the S&P500 over the same period. Further, at its current price of $179 per share, it is trading 18% below its fair value of $219 – Trefis’ estimate for Salesforce’s valuationThe company posted better-than-expected results in the fourth quarter of FY 2023 (FY Feb-Jan), with revenues increasing by 14% y-o-y to $8.38 billion. It was driven by a 14% rise in subscription & support revenues and a 19% increase in professional services & other revenues. Notably, the subscription & support segment contributes around 90% of the top line. It benefited from a 13% rise in sales cloud, marketing & commerce cloud, and service cloud, a 15% jump in platform & other, and an 18% rise in data sub-segments. Despite positive growth in revenues, the company reported a net loss of $98 million, up from $28 million in the year-ago period. It was primarily due to a restructuring cost of $828 million and losses on strategic investments of $314 million.

The company’s top line grew 18% y-o-y to $31.35 billion in FY 2023. It was mainly driven by an 18% growth in the subscription & support segment, followed by a 27% rise in the professional services & other revenues. On the cost front, the gain on strategic investments decreased from $1.2 billion to -$239 million. Further, operating expenses as a % of revenues witnessed an unfavorable increase in the year. Altogether, it led to an 86% y-o-y drop in the adjusted net income to $208 million. 

Moving forward, the firm issued revenue and earnings guidance for Q1 FY2024 – revenue $8.16-$8.18 billion and GAAP EPS of $0.24-$0.25. All in all, Salesforce’s revenues are estimated to touch $34.65 billion in FY2024. Additionally, CRM’s revenue per share (RPS) is likely to increase to $33.74. This coupled with a P/S multiple of just above 7x will lead to a valuation of $219.

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 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CRM Return 9% 35% 161%
 S&P 500 Return -1% 2% 75%
 Trefis Multi-Strategy Portfolio -1% 6% 233%
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[1] Month-to-date and year-to-date as of 3/10/2023
[2] Cumulative total returns since the end of 2016

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