CRM: Should You Buy the Dip in Salesforce?

Salesforce’s universe is expanding as it buys Slack Technologies
Salesforce revenues grow, and EPS consistently beats estimates
Salesforce’s CEO Marc Benioff is building an empire as he acquires franchises

Salesforce (CRM) is just over twenty-one years old. In 1999, Salesforce incorporated, and Marc Benioff, Parker Harris, Frank Dominguez, and Dave Moellenhoff began work on Salesforce’s CRM. The first office was in a one-bedroom apartment in San Francisco.

In 2001, Marc Benioff became the company’s CEO and Chairman. In 2004, it completed its IPO on the New York Stock Exchange, raising $110 million at $11 per share. In 2008, revenue exceeded $1 billion. In 2010, the company acquired Heroku, an application platform-as-a-service. In 2011, it gobbled up Radian6- a social media monitoring company. The 2013 ExactTarget acquisition cost the company almost $3.5 billion. It paid $2.8 billion for Demandware in 2016. The 2018 acquisition of MuleSoft for $6.5 billion helped power Salesforce’s integration capabilities, and CRM bought ClickSoftware for $1.35 soon after the MuleSoft purchase. In 2019, the company bought Tableau, an analytics platform, for $15.7 billion. This year, Vlocity became another company to fall under CRM’s umbrella for a price tag of $1.33 billion.

On August 31, 2020, CRM replaced Exxon mobile in the Dow Jones Industrial Average. CRM announced earnings this week and it knocked the ball off the cover. Simultaneously, CRM acquired a leading technology software platform with a market cap above $24 billion. CRM shares fell to a low of $115.29 during the March 2020 risk-off period. Since then, the shares doubled as Marc Benioff’s company continues to grow.

CRM’s universe is expanding as it buys Slack (WORK)

As 2020 comes to an end, CRM bought Slack Technologies (WORK), a publicly traded company with a market cap of around $24.367 billion as of December 2. CRM paid an enterprise value of $27.7 billion for WORK. Salesforce’s market cap stood at over $200 billion level as of December 2.

Slack is a global business technology software platform that uses a software-as-a-service model to bring together people, applications, and data. The proposed acquisition of WORK sent CRM shares lower as the market assumes the purchase could be dilutive rather than accretive for Salesforce in the short-term. Meanwhile, CRM is looking to challenge Microsoft (MSFT) as CEO Marc Benioff assumes that the marriage of CRM and WORK will create a 1+1=3 equation. Meanwhile, CRM’s price path has been nothing short of incredible over the past years, especially since March 2020, when the stock hit a higher low since 2018 of $115.29.

Source: Barchart

2024 STOCK MARKET OUTLOOK

As the chart highlights, CRM hit a new high of $284.50 in September before pulling back to just over the $220 level on December 2 after the earnings announcement and WORK acquisition. Benioff’s acquisition strategy has built Salesforce into the leader in enterprise cloud computing solutions.

CRM revenues grow, and EPS consistently beats estimates

Over the past four quarters, CRM has consistently beat consensus earnings estimates.

Source: Yahoo Finance

The chart shows the record over the past four quarters, where CRM has been profitable and beat EPS estimates. The latest earnings report came in at an adjusted $1.15 per share, beating estimates of 75 cents. Quarterly revenues of $5.42 billion were above the $5.25 billion projection.

Source: Yahoo Finance

CRM’s revenues have been steadily growing since 2017, and the company has consistently made a profit.

Marc Benioff is building an empire as he acquires franchises

Marc Benioff has built a leading technology services company taking it.

Source: Barchart

Over the past sixteen years, CRM has risen from a split-adjusted $3.75 per share in June 2004 at the IPO to around $220 on December 2.

The most recent earnings report and WORK acquisition on the same day are a sign that Marc Benioff’s strategy is working, and he will continue to acquire franchises that complement and enhance the company’s business. The market may believe the acquisition is dilutive, but history tells us that CRM remains a buy on dips on the back of its rising earnings power, suite of businesses, and customer base. CRM is a growth opportunity.

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CRM shares were trading at $222.69 per share on Thursday afternoon, up $1.91 (+0.87%). Year-to-date, CRM has gained 36.92%, versus a 15.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...