Whether to buy CRM stock often boils down to how an investor views two fundamental trends. One, rising corporate spending on digital transformation projects. And, two, Salesforce.com‘s (CRM) penchant to make big acquisitions, such as Slack Technologies (WORK).
Add a third factor to evaluating CRM stock: growing competition with Microsoft (MSFT). Microsoft’s Dynamics has gained traction as a lower-priced alternative to Salesforce tools, some analysts say. In addition, Microsoft is putting more salespeople behind the Dynamics business.
Amid growing competition with Microsoft, Salesforce agreed to pay $27.7 billion for workplace collaboration software maker Slack on Dec. 1. That marked a 55% premium to Slack’s closing price on Nov. 24, before reports of the deal surfaced. Meanwhile, Salesforce stock sold off on the Slack announcement.
At a investor day on Dec. 8, Salesforce said it aims to double revenue to $50 billion by 2026, including a $4 billion contribution from Slack. At the same time, Salesforce stock lowered its organic revenue growth target to 19% from 20% over the next four years.
Amid the coronavirus pandemic, demand for next-generation collaboration and productivity tools has increased. In addition, many companies aim to automate operations and track key business metrics in order to support employees working from home.
One view is that spending on digital transformation projects will pick up again when the Covid-19 emergency eases. Such projects turn paperwork into electronic records and automate business workflows. More companies are investing in business analytics/artificial intelligence tools that scrub customer data.
Salesforce Stock Joins Dow Jones Industrial Average
On Aug. 31 CRM stock was added to the Dow Jones Industrial Average. Further, Salesforce stock replaced Exxon Mobil (XOM) in the 30-stock benchmark.
Meanwhile, CRM stock recently was added to the IBD Long Term Leaders list.
Also, the bar keeps rising when investors look at Salesforce’s “biggest acquisition ever.” Its purchase of Exact Target in 2013 was followed by e-commerce platform Demandware in 2016, and MuleSoft in 2018. Then Salesforce ponied up $15.7 billion in an all-stock deal to buy data analytics firm Tableau Software last year.
Then came the Slack deal.
The acquisition spree has pressured CRM stock. Further, the deals raised questions over Salesforce’s organic growth.
The upbeat view is that acquisitions have enabled Salesforce to expand from its roots in customer relationship management software into marketing, e-commerce and other markets.
CRM Stock: Core Business Strength An Issue
Salesforce is one of many big-cap tech stocks to watch. Started in 1999, Salesforce went public in 2004. Salesforce founder and Co-Chief Executive Marc Benioff worked at Oracle for 13 years before he left to start the software company.
In a surprise, co-CEO Keith Block on Feb. 25 stepped down. CRM stock fell on the news.
Further, Salesforce software helps businesses organize and handle sales operations and customer relationships as they undergo digital transformation.
San Francisco-based Salesforce sells software under a subscription model. The customers of software-as-a-service, or SaaS, companies like Salesforce purchase renewable subscriptions, rather than one-time software licenses. Customers receive automatic software updates via the web.
Also, the company spends about 14% of revenue on research and development, relatively high for a software company. Increased hiring and wage inflation for software engineers also have been a headwind to margin growth.
Salesforce Stock: Fundamental Analysis
In its fiscal second quarter ended July 31, Salesforce sold its shares in Zoom Video Communications (ZM) as well as some other public companies, according to reports.
Salesforce reported October quarter earnings and revenue that topped analyst estimates as it recorded a big investment gain on recent IPO Snowflake (SNOW) stock.
Salesforce earnings boomed to $1.74 a share, including an 86-cent gain from investments, the company said. Also, revenue rose 20% to $5.42 billion.
A year earlier, Salesforce earnings were 75 cents a share on sales of $4.51 billion. Analysts expected Salesforce to report flat earnings of 75 cents a share on sales of $5.25 billion.
The enterprise software maker said current remaining performance obligations, or CRPO bookings, rose 20% to $15.3 billion, edging by estimates. Salesforce projected January quarter CRPO growth of 16%, below estimates of 17%. CRPO bookings are an aggregate of deferred revenue and order backlog.
Salesforce Builds Artificial Intelligence Platform
One technology that Salesforce hopes will drive more revenue is artificial intelligence. The enterprise software maker introduced its “Einstein” AI software cloud platform in September 2016. The first Einstein AI software tools helped salespeople predict which deals are most likely to close based on a company’s historical lead and account data.
In addition, Salesforce has integrated AI tools into other enterprise software offerings over the past three years, targeting industries such as financial services in digital transformation. Einstein AI primarily works via chat bots.
Salesforce in 2019 agreed to buy data analytics firm Tableau for $15.7 billion in an all-stock deal. Tableau provides data visualization software. In addition, it enables customers to build databases, graphs and maps using time series analytics, a technique that analyzes a series of data points ordered in time.
Also, Salesforce expects synergy between its Einstein artificial intelligence tools and Tableau’s business intelligence software.
In early October, Salesforce announced that it would rebrand Einstein Analytics as Tableau CRM.
In 2018, Salesforce bought MuleSoft for $6.5 billion in cash and stock. MuleSoft’s software automates the integration of new tools with legacy enterprise platforms and speeds application development.
Meanwhile, Salesforce spent $4.6 billion on acquisitions in 2016. They included e-commerce platform Demandware.
E-commerce has boomed amid the coronavirus pandemic. The shift to online shopping has provided a lift to Salesforce’s “Commerce Cloud,” which has its roots in the Demandware purchase.
Furthermore, Salesforce’s $2.5 billion purchase of Exact Target in 2013 jump-started its move into marketing software.
Bullish analysts say Salesforce AI’s tools, plus Tableau, plus MuleSoft will make a powerful combination for digital transformation projects.
CRM Stock: Technical Analysis
Further, Salesforce aims to partner with IT services firms such as Accenture (ACN) to add customers. Despite U.S.-China trade tensions, Salesforce in July added Alibaba Group (BABA) as a sales channel partner in China.
In cloud computing, Salesforce has partnered with Google for data analytics. In addition, Salesforce has expanded its venture capital investing.
Further, CRM stock has an Accumulation/Distribution Rating of D-minus. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Is Salesforce Stock A Buy?
Salesforce stock stock took a big hit in March 2020 like other software companies as Covid-19 spread globally. Shares hit an intraday low of 115.29 on March 18, a correction of roughly 40%. Like other technology stocks, Salesforce rebounded over the summer.
In October and early November, Salesforce stock formed a double-bottom chart pattern. In addition, that forged a new entry point of 270.26.
Also, the Slack deal is set to close in Salesforce’s July 2021 quarter.
In addition to announcing the Slack acquisition, Salesforce said Chief Financial Officer Mark Hawkins will retire effective Jan. 31. Further, Salesforce named President and Chief Legal Officer Amy Weaver as its new CFO.
CRM stock has corrected some 18% since reports it would buy Slack surfaced. It trades well below the entry point of 270.26. For technical reasons, CRM stock is not in a buy zone.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and 5G wireless.
YOU MAY ALSO LIKE: