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Salesforce: The Cloud Titan Keeps Growing

Mar. 01, 2018 6:09 AM ETSalesforce, Inc. (CRM)10 Comments
Gary Alexander profile picture
Gary Alexander


  • Salesforce posted a strong end to FY18, with fourth-quarter earnings that topped analyst consensus and FY19 guidance above expectations.
  • The company's 24% y/y top-line growth showed barely any deceleration from 25% growth last quarter; the outlook also calls for robust 21% y/y growth in FY18.
  • On top of beating analysts' pro forma earnings estimates, Salesforce also turned a positive GAAP quarter.
  • Salesforce is also pointing to ~20% operating cash flow growth in FY19, implying that the company is trading at a very reasonable forward OCF multiple of 24x.
  • Among SaaS stocks, Salesforce is one of the most modestly valued despite its consistently strong execution.

Salesforce (NYSE: CRM), the world's largest pure-play SaaS company, has done it yet again. For much of the company's decade-long lifespan as a public entity, it has spun out quarter after quarter of earnings beats and guidance raises, shepherding the stock's measured yet steady rally from its post-recession lows to a high now of over $115. Yet despite the expansion in the stock price and amid a cry from some investors who criticize Salesforce for not generating enough GAAP profits yet, Salesforce's fundamentals have risen in tandem with its shares. Marc Benioff, the company's iconic CEO, has made clear that he isn't satisfied with leaving Salesforce at the $10 billion annual run rate it just crossed this quarter - he's already drawn a line in the sand for $20 billion.

This means that Salesforce's growth isn't about to taper off anytime soon. Despite longstanding investor fears that Sales Cloud, the company's flagship product, will soon stop growing (it's already tapered down its growth to the mid-teens), Salesforce's platform and other tertiary clouds are becoming massive businesses in their own right. On the side, Salesforce also has a nascent pool of "strategic investments" in companies like Twilio (NASDAQ: TWLO) that it could eventually acquire. The possibilities for this cloud giant are still very much an open-ended game.

As such, Salesforce is still spending nearly half of its revenues on sales and marketing to chase growth. You could argue that other mega-cap tech success stories followed the same kind of playbook; Facebook (NASDAQ: FB), for example, didn't generate the massive profit margins it does now until recently. Directly after its IPO a few years back, the company was still focused on user acquisition and content development; Mark Zuckerberg didn't care at all about the bottom line. The company executed far ahead of plan regardless and is

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I am/we are long CRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

It’s heading higher.
Retrostar profile picture
There is just something about their CEO that seems dishonest and insincere, can't put a finger on it. Like we're not seeing everything. It's a vibe I'm getting.
Ding ding ding!!! Snake oil salesman... how many other CEO’s go on Mad Money to talk up the stock EVERY quarter... beat by a couple pennies.... increase revenues by $100 million... sell a dream about $20 billion in rev...
ChuckXX profile picture
Retrostar; I have read several articles that report he is a " Huge Waster of Shareholder Money" in oh so many ways. Case in point: The ridiculous skyscraper he is building in San Francisco. S.F. is probably one of the most expensive cities in the world and of course thats where he's building his H.Q. I also have read that he throws wildly lavish parties and doesn't think twice about spending company money like a drunken sailor. So just like Enron it will eventually come to an end but when is anybodys guess.
Most confusing company and stock. It has all the data to support it going up and going down. Total mind twister.
Did you forget to include information about GAAP earning?

Let me help. CRM's own forecast for FY2019 (so take out the effect of the recent tax cut which confuses earning numbers) is $0.61- $0.63. That makes a PE of about 190. It is also printing shares like crazy.
Sharon Keren profile picture
Very good article. Thank you (long crm)
Sharon Keren profile picture
BTW, they say they will be the fastest to grow from 10bn to 20bn. Anyone knows who was the fastest..? That might give us a time frame for the expected leap.
Nice peptalk. I'm happy P/E and more ratio's do not count :-)
Great report, and having listened to their conference call, I feel quite "assured" that MB, KB and the CFO have got more than what it takes to take CRM to $20B and beyond. As for the margin worries you raise in your report, I feel that we do not know, and perhaps will never know answers to the following questions that will answer your (and most investors') worries about CRM's long term EPS trajectory, i.e. large opex spending, but benefits from them not going to be known for a while:
- they are, to me, making lots of vertical (industry) specific capabilities, save for biotech/pharma, where VEEV seems to have already taken the lead, and perhaps, it is the most difficult vertical for CRM to build a meaningful capability in;
. they are also building strong horizontzal, i.e. cross-industry capabilities, from Einstein, to seamless use of their software from the innards of the enterprise to the outer reaches of each of these enterprises' customers. As an example, when they talked about their applications plugging and playing with Amazon Echo and such, I really didn't "get" what they are up, but can only have "blind belief" they are doing something that will leverage their sales capabilities, across the world, as these IoT platforms seem to be proliferating everywhere. (But I did miss their not mentioning Apple even once, as they too are so much into end-users).

Great quarter, but as always, when it comes to CRM, much of what they do, and where they gain such tremendous growth is just a "black box". Esp, when you think, how come ORCL, SAP even MSFT can't just reverse engineer their software and go to market? These guys just seem to be "magicians"!
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