I think every investor has a few stocks about which he has been kicking himself: "Why didn't I buy it XYZ years ago when I already saw it was a great company?" For me, Salesforce.com (CRM) is one of those stocks. I should have bought shares a long time ago, but somehow never did.
But mistakes are there to be corrected, and I bought my first batch of Salesforce shares on May 24, as I announced on my Twitter account:
In this article, I will give five reasons for why I did so.
1. Marc Benioff, Salesforce's CEO
Marc Benioff, Salesforce (co-)founder, (co-)CEO and chairman, is the main reason why I have bought shares of Salesforce. I'm not easily impressed by people (I have no idols), but I am by Benioff. The man is, for me, in the absolute top of legendary founders: the category where you find Steve Jobs (AAPL) (who was, by the way, a mentor of Benioff), Bill Gates (MSFT), Jeff Bezos (AMZN), Mark Zuckerberg (FB), Larry Page and Sergey Brin (GOOG, GOOGL), and Reed Hastings (NFLX). They are not just the visionary founders of great companies, but they are larger than life. Those founder-CEOs are obsessed with their products. They really push their companies to outsized success.
When you are reading this article, Marc Benioff will probably be a familiar name, but for the average Joe, the name is still unknown. I think that will change in the course of the next few years.
Benioff has a very charismatic and flamboyant personality. He sees it as his task to make the world a better place by the use of technology. In 1999 already, at the very start of Salesforce, Benioff created the 1-1-1 model of integrated corporate philanthropy. It's a contribution of 1% of shares, 1% of employee hours (mostly volunteering) and 1% worth of product to the community it is in. For the 1% product, Salesforce created the Philanthropy Cloud. The company announced that Philanthropy Cloud is "a revolutionary new marketplace for giving, a first of its kind network platform to connect corporations, employees and nonprofits at scale."
In the meantime, more than 700 companies (and counting) have started to apply the 1-1-1 rule at least partly, including Alphabet, Atlassian (TEAM), DocuSign (DOCU), PagerDuty (PD), Yelp (YELP) and many others. So you see that Benioff is not afraid to start a movement. That's what I call charisma.
But Benioff's philanthropy is, of course, not the main reason why I have invested in Salesforce. He has huge ambitions at the business level too.
Benioff is seen as one of the inventors of a huge market that is still expanding at rapid speed: SaaS, or Software as a Service. SaaS is expected to gather revenue of $85 billion in 2019, and the total cloud industry is expected to have a revenue of $278 billion by 2021.
But as simple as it seems now, it really took a hard-headed visionary man as Benioff to bring Salesforce to where it is now. After all, the company was launched in 1999, just before the dot.com bubble burst. Both Salesforce and Benioff were seen as losers and ridiculed back then. Remember, there was no cloud to speak of yet back then, and as they say, the pioneer always gets shot. So, it is a testimony for Benioff that he could guide Salesforce through this period. He fought with all the tactics he could come up with, many under the form of guerilla marketing stunts.
You shouldn't forget that Salesforce's competitors were giants like Oracle (ORCL), SAP (SAP) and Microsoft. As a small player fighting these giants and coming out as a clear winner, you have to have grit and determination. That is what I like in CEOs of companies I have shares of.
Just as Steve Jobs and Bill Gates, it came early for Benioff. At the age of 15, he sold his first software "How to juggle?" for $75.
Benioff was also in the top 10 of the most-liked CEOs on Glassdoor.com for 2018. As my fellow-contributor App Economy Insights showed in his article, being in the top of Glassdoor is a good prediction for long-term gains.
I could make write pages more about Benioff, but that is not the intention of this article. I think you know enough now to understand that Marc Benioff is the most important reason for me to own Salesforce.
Salesforce recently signed the White House Pledge to America's Workers to train 500,000 people to use Salesforce and to give them credentials through Trailhead, its online learning platform where you can learn everything about using Salesforce at your own pace and conditions. By means of gamification, you can learn all the skills to be successful in the Salesforce ecosystem. This should help empower the participants to get top jobs over the next five years.
From the press release on the Investor Relations page of Salesforce about the Pledge, you can see that the Salesforce universe will keep expanding over the next few years:
According to IDC, Salesforce and its ecosystem of partners and customers will generate 3.3 million new jobs and $859 billion in new GDP impact worldwide by 2022. More than 300,000 job postings ask directly for Salesforce skills and offer an average salary of $70,000 per year. Additionally, Indeed named Salesforce developer one of the top 10 best jobs in America in 2019.
So, do I say the same as in point 1, namely that I love the good cause of this initiative? Sure, but I like one thing as much as the ESG side of this: Salesforce is training an army of people that will be disciples who will spread the Salesforce ecosystem as if it were religion. Don't forget, a lot of these people will seriously improve their lives, and that will make them thankful for Salesforce. Or how do you think the former housewife feels who Benioff mentioned in his recent Jim Cramer interview and who now is the leads of a team of 35 people after following the Trailhead training? She will love Salesforce from the bottom of her heart. And more people like that will follow. Those people are probably the best marketing campaign there is.
Just to make it clear: the White House Pledge was for 500,000 American people who get reskilled. But 1.4 million people worldwide are already following the Trailhead courses.
3. Salesforce keeps taking market share of competitors
Salesforce is the market leader, and it is still building out its market dominance more and more, no matter what the competition tries to do. This is its market share:
(Source: Marc Benioff's Twitter account)
16.8% of the CRM (Customer Relationship Management) market - that is impressive, especially if you know that the second biggest, Oracle, only has 5.7%. And the two biggest competitors, Oracle and SAP, are losing market share versus Salesforce, suggesting that Salesforce takes over customers of its competitors. That is impressive. And even more if you take into account the fact that Oracle has bought NetSuite in the summer of 2016 for $9.3 billion to expand its cloud offerings.
This quote of Marc Benioff from the Q1 2020 earnings call says enough, in my opinion:
And it's not only that, in 2018, Salesforce gained more CRM market share than the other top vendors combined, 15 top vendors combined, that's amazing. We're number one in sales, we're number one in service and we're leading in so many other areas. We're number one in model-driven application platforms, driven by our amazing community of 6 million developers. We're also a leader in marketing and commerce and continue to gain share and with MuleSoft we also have this number one integration platform, it's incredible.
And Salesforce has a huge TAM (total addressable market). At this moment, the TAM stands at about $140 billion, but all of the market segments are growing, and most by double digits per year:
And the picture looks even better than that. Mark Hawkins, Salesforce President and CFO, said on the Q1 2020 earnings call:
Multicloud is a very, very unique capability and advantage that we have, and it's really an advantage to pay attention to. You've never seen this data before. This is 100% of all the paying customers we have, all 150,000-plus paying customers. And 38% of them are multicloud, which tells me a very encouraging bit of news, which means that 62% are not. And the reason that's particularly encouraging is when you go to multicloud, you spend 10x as much. This will power durable growth for years to come.
Especially the part "when you go to multicloud, you spend 10 x as much" is very encouraging for the company. To show you how important that is, 92% of revenue comes from multicloud clients. If Salesforce can convince 62% of its existing customers to go multicloud and maybe take them to Customer 360, then it could even accelerate its growth.
4. Long-term financial goal setting
As I have already explained, I like CEOs who are ambitious. That doesn't only apply to their vision, but also to the financial goals they set. And Marc Benioff is one of the few top executives who is very open about his goals.
He first set a goal of $10 billion of revenue in 2016 to achieve in FY 2018 (ending in December 2017). And he added: “My dream is to double this company within the next three to four years.”
This is what the revenue of Salesforce over the past few years has looked like:
(Compiled by the author)
For Salesforce to reach the goal of $20 billion revenue at the end of 2020 (FY 2021), it would have to grow its revenue by another 23% if it hits its guidance. And you know what? I think the company can do that.
Benioff has even set out a longer-term goal: by 2023 he wants $28 billion of revenue. And peering even further into the future, Benioff has already set the goal for 2034. Then, he wants $60 billion of revenue for Salesforce.
And the goal-setting seems to be really ingrained into the company. Salesforce's co-CEO Keith Block said in an interview:
I remember when our goal was to have the Top 10 banks running their business on Salesforce. Then the goal was the Top 20 banks. Well now, we do business with nearly every financial institution in the Fortune 500.
(Co-CEO Keith Block - Source)
I really like that culture of goal-setting. Measurable goals are a great tool to bring an excellent drive to your company, especially if they are combined with excellent CEO approvals, such as that of Benioff on Glassdoor. Because what a lot of investors miss in their quantitative approach to investing is that the company culture is one of the most defining factors for success or failure for a company. If you have ever worked for one, you know this to be true. But it is impossible to quantify that.
5. An ever-expanding universe.
The good thing about Salesforce is that it keeps adding more and more products. This is no coincidence: Salesforce has been in the Forbes Most Innovating Companies list for eight years in a row, coming in at #3 in the 2018 list. And that pays off. Besides new customers, existing customers can also be upsold because they sign up for the company's new product offerings.
Salesforce offers several clouds: Sales Cloud (I think you can guess what that one is for), Customer Cloud (to manage customer support), Marketing Cloud (for personalized marketing to customers), Commerce Cloud (which is used for management and insights of e-commerce), Data Cloud (for sales and lead generation), Community Cloud (a social platform to connect employees and customers), Analytics Cloud (a platform for business intelligence, optimized for mobile access and data visualization), App Cloud (an integrated architecture for enterprise developers) and IoT Cloud (meant to store the data of Internet of Things devices). That is already an impressive universe of clouds. Here's a schematic representation:
Salesforce has rolled out its AI platform Einstein recently. Businesses have huge amounts of data, and Einstein will learn from these data. It will sift through the data and give you insights that would be very difficult or time-consuming to implement on your own. Bots are an example. Einstein can also provide an automatic translation.
On the Q1 2020 earnings call, Benioff talks about what has been added to Einstein and also about the blockchain:
In Q1, we announced our new Einstein Platform Services that enable everybody, regardless of their technical skill, to build custom AI-powered apps with just a few clicks, and that has been so important for our customers because just as we've infused these Einstein AI capabilities across our entire product line and made Einstein Voice and also Einstein Vision capabilities available to every Salesforce app, we're now doing this exact same thing with another critical technology for our customers, which is blockchain.
Einstein already provides a whopping 6 billion predictions per day. And since it helps their businesses, customers love it.
The blockchain is the next big wave that Salesforce will surf. Again, here's Benioff on the Q1 2020 earnings call:
Last week, at TrailheaDX, our sold-out developer conference in San Francisco, we introduced Salesforce Blockchain. It is a breakthrough. Every customer app can have blockchain capabilities. It's the world's first declarative blockchain service solution and it's built in deeply now into all of our apps. It's built in deeply into our platform. It's built natively on our platform, enabling customers to easily create blockchain applications through simple drag-and-drop as they can with every other Salesforce app. And I'll tell you, in Minneapolis, on Friday, demonstrating it to one of our very large customers and showing how they can use it for their supply chain and it's just incredible what it's going to do for so many of our customers in every industry.
But it is not the only focus. Salesforce also has Customer 360, a suite that combines all of the services that the company has into one big, integrated platform. Benioff noted on the earnings call:
I'll tell you right now, we really pivoted our entire company into something that we call Customer 360. It's a pretty hard pivot for a company and we're so excited about this opportunity and a lot of it is because of tremendous momentum that we've seen over the last year with MuleSoft. And this idea that what our customers want us to do is to be able to take everything they're doing in regards to their customers.
So that is their sales, their service, their marketing and their journeys, their commerce and their customer engagement systems, apps they're building, APIs that they're building for developers to integrate with those customers. All the analytics, the custom applications by industry, the communities, the learning and reskilling systems that I mentioned and the employee experience as well. And to bring it all together, using all these amazing technologies that you know are becoming so important to us like blockchain, AI, whether it's vision or voice, it's incredible what is happening just in the last two years or three years, put it all on a phone, deliver it all as a programmatic capability, make it secure and then wrap it all together, put a bow on it and call it Customer 360. And we're the only ones who are really trying to do this.
I think this is a great development. Too many compartments will lead to sterile work at a certain moment. It is the integration of all the different services and insights that will create completely original new insights.
I should have bought shares of Salesforce a long time ago, but somehow I never did. But I am pretty confident that the company will keep growing for years and years. The compounding effect will show its magic when Salesforce keeps adding 20%+ revenue growth year after year.
With its visionary CEO Marc Benioff leading the way and motivating his troops with ambitious financial targets, there is no stopping Salesforce. The company is still number three on the Forbes Innovators List, and as a result of its ingrained innovation, it keeps rolling out new services. The future is bright for Salesforce, and I am glad I finally am a shareholder of this wonderful company.
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In the meantime, keep growing!
Disclosure: I am/we are long CRM, AMZN, DOCU, AAPL. 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.