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Salesforce: It's A Buy

Nov. 25, 2019 4:45 AM ETSalesforce, Inc. (CRM)14 Comments


  • Salesforce is a high quality business delivering a mission-critical customer relationship management function to enterprises.
  • The business has progressively expanded its foothold into adjacent markets, which will increase customer retention and contribute significantly to revenue.
  • Salesforce is attractively priced and should be bought at these levels.
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Business Summary

Salesforce (NYSE:CRM) pioneered cloud-based, customer relationship management, and has since added a suite of ancillary services including a Service Cloud, a Commerce Cloud and a Marketing Cloud for digital marketing campaigns. Salesforce has a market capitalization of almost $135B, and generates close to $13B in annual revenue. The company's flagship product is used by sales and marketing teams to manage sales prospects through a funnel from initial lead all the way to customer and to run campaigns against a prospect database. Salesforce has been a standout for high growth investors over the last 10 years and has delivered investor returns of nearly 27% p.a over this period. Salesforce is a core holding for the Project $1M portfolio.

Investment Thesis

Core product is very sticky

Salesforce is part of the revolution away from on-premise customer management to consumption of services in the cloud. In this model, customers aren't paying for a perpetual license, they are just paying for what they consume. The advantage for customers is the avoidance of cumbersome updates of difficult on-premise installations and lengthy upgrade cycles as well as high upfront costs.

However, the beauty here is that for really sticky, mission-critical services, the lifetime customer value is potentially much higher, as retention rates for subscriptions are incredibly high. The offering that Salesforce has fits squarely into this category. Sales prospects and sales leads are the lifeblood of a company. Companies are loath to bring any system change or disruption to their sales people, unless they want major flow on impacts to revenue. IT teams are hesitant to recommend changeover to new systems even for systems that may be cheaper, because the retraining involved to learn a new system and potential data loss in a changeover is incredibly disruptive to a salesforce. Time training on a new system is time away from selling and that hurts revenue. This

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This article was written by

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Strategies designed to unearth long-term, wealth creating machines.

I am an investor who is focused on disruptive businesses that are transforming industries lead by visionary leaders with substantial skin in the game. I have spent nearly 20 years in a formal capacity in various investment banking and corporate advisory roles, having attained my MBA with a concentration in finance. This led me toward a path in Venture Capital and working with entrepreneurs building new technology businesses, and I have had the opportunity to not only invest in a number of amazing privately held businesses, but also play a meaningful role in growing several of these early stage enterprises as well. I am now focused on applying my lens of private market disruption and leveraging secular tail winds to the public markets. This was a journey which I started with my public Project $1M portfolio series and which I have deepened with my marketplace service, Sustainable Growth

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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