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Salesforce.Com: Don't Expect Much

Jun. 01, 2020 1:25 PM ETSalesforce, Inc. (CRM) Stock5 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of Salesforce dipped after the company released Q1 results and issued dour guidance for the remainder of the year.
  • Salesforce expects revenue growth to decelerate to ~22% y/y (from 30% y/y) in Q2; things will optically get much worse in Q3 when the prior-year comps begin to include Tableau.
  • The slimming-down of sales and marketing headcounts across major companies in an attempt to save costs are directly hurting Salesforce's products.
  • For a company with true organic growth expected in the low/mid-teens, Salesforce's valuation at ~7.4x forward revenues is overblown.

Salesforce.com's (NYSE:CRM) best days, in my view, are behind it. After an impressive market-beating performance so far in the year to date, up ~5% while the rest of the market is down about 7%, Salesforce looks to be on a path to correcting downward. Most investors have treated the technology industry - and the software sector specifically - as safe havens during the coronavirus pandemic. But obviously, there are a lot of nuances within software that make some companies more affected than others, and Salesforce unfortunately falls into that category.

After releasing disappointing first-quarter results and offering only a dim outlook for the rest of the year, shares skidded - and I think the correction has much further to go.

Steer clear of Salesforce here. In the software space, it's best to invest in pandemic-proof names that benefit from the shift to remote work.

Why CRMs are disproportionately affected during the coronavirus

I'll give Salesforce one positive note: over the past several years, the company has done an admirable job of expanding its product portfolio beyond its core Sales Cloud, the largest and most dominant cloud CRM (customer relationship management software). I don't necessarily agree with Salesforce's "buy rather than build" approach to growth and its aggressive M&A tactics, but Salesforce has proven its ability to join the ranks of mega-cap software companies like Microsoft (MSFT) and Oracle (ORCL) by offering a broad portfolio of technologies.

With that being said, we have to acknowledge that Salesforce's largest money-maker is still the Sales Cloud, contributing 29% to Salesforce's FY20 revenues. Salesforce's Marketing Cloud, meanwhile, contributed another 16% of revenues - so about half of Salesforce's revenue is exposed to users involved with sales and marketing.

CRM is such an attractive space because virtually every company has a sales

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/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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Comments (5)

Every company needs some kind of crm to grow. With their application I can't see them losing long term.
GDH2173 profile picture
They should invest their ~8b in cash/short term investments and they'd make more than what the company generates in net income. Joking aside, what levers does this company pull to actually make money? They have to spend big on R&D. They have to keep marketing like crazy - for new business and to keep their employee base happy. And CRM has to keep spending huge sums of money after a corporate customer buys the platform just to ensure that it actually is used.
yieldhunter196 profile picture
Organic or not, who cares 💁🏻‍♂️ Never bet against Benioff and CRM
their work.com seeing intriguing and a method of long term growth leader...
Hudson Investments profile picture
I disagree with your premise. The conventional wisdom is that the the 2nd and 3rd quarters are going to be brutal for many companies. So much so that they are not even reporting it.

I give credit to Marc Benioff for getting out in from of the forecasts and being honest.

BTW, don't count Benioff out. CRM will do very well in this environment.
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