Company Overview: Salesforce, Inc. (NYSE: CRM), formerly known as Salesforce.com, Inc., is a global leader in customer relationship management (CRM) technology, bridging the gap between businesses and customers. Its client 360 platform combines customer data from many systems, apps, and devices into a single source of truth, allowing organisations to sell, service, and do business from anywhere. Service Cloud for customer service, Marketing Cloud for digital marketing campaigns, Commerce Cloud for e-commerce, and MuleSoft for data integration are among the solutions available.

CRM Details

Key Takeaways from FY22 (ended January 31, 2022)

• Boost in Revenues: CRM'S Total revenues for FY22 were USD 26.49 billion, up 24.66% from FY21's USD 21.25 billion.
• Boost in Income from Operations: The company reported an increase in operating income to USD 548 million in FY22 from USD 455 million in FY21.
• Progress in Headcount: Due to the acquisition of Slack, CRM's full-time equivalent headcount climbed by 5.77% to 73,541 as of January 31, 2022, up from 69,530 as of October 31, 2021.

 Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• Rimini Street, Inc., a global provider of enterprise software solutions and CRM, stated on April 6, 2022, that Labeyrie Fine Foods, based in France, had switched its Oracle JD Edwards and Oracle Database support to Rimini Street, an award-winning service provider.
• On April 5, 2022, CRM announced that Bose, a leader in premium audio products, will use CRM's Customer 360 to extend its robust direct-to-consumer business, delighting customers and building loyalty.
• CRM announced on March 25, 2022, that it would change its legal name from salesforce.com, Inc. to Salesforce, Inc. as of April 4, 2022. Its common stock will continue to trade on the NYSE under the symbol CRM and with the same CUSIP/ISIN number as before.

Segment Wise Results FY22

• Subscription & Support – In FY22, this segment accounted for 93.07% of total revenues, growing by 23.43% year over year to USD 24.66 billion from USD 19.98 billion in FY21.
• Professional Services and Other – In FY22, this segment contributed 6.93% of total revenues, up 43.81% year over year to USD 1.84 billion from USD 1.28 billion in FY21.

Balance Sheet & Liquidity Position

• Minor Drop-in Cash Balance: The company's cash balance (including marketing securities) was USD 10.54 billion as of January 31, 2022, down 11.94% from USD 11.97 billion as of January 31, 2021.
• Rise in Cashflow from Operations: CRM's net operating cash inflow increased to USD 6.00 billion in FY22 from USD 4.80 billion in FY21.
• Expansion in Investing Activity: For the fiscal year ended January 31, 2022, net cash used in investing activities increased to USD 14.54 billion, up from USD 3.97 billion for the fiscal year ended January 31, 2021. Due to corporate acquisitions and strategic investments, this modification was necessary.

Key Metrics: CRM's EBITDA and net margins in FY22 were 14.5% and 5.5%, up from the industry medians of 5.8% and -6.2%, respectively. The company operates at a debt/equity ratio of 0.19x as of FY22 compared to the industry norm of 0.29x.

Profitability and Leverage Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 35.73% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and Fidelity Management & Research Company LLC hold the maximum stake in the company at 7.69% and 6.63%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Dependence on Third-Parties: Third-party data centre hosting facilities and cloud computing platform providers currently service customers in the United States and other nations. It also performs its services with computer equipment purchased or leased from third parties and software licenced from third parties. Any disruption, damage, or failure of the company's systems, including third-party platform suppliers, might cause service interruptions, hurting revenues and cash flows.
• Currency Fluctuation Risk: CRM operates in several worldwide markets, including the Americas, Europe, and the Asia Pacific, with most of its transactions being in foreign currencies. It is exposed to foreign currency risk due to doing business and investing in other currencies.
• Product Concentration Risk: CRM corporate cloud computing application subscriptions make up a large percentage of the company's revenue, which it intends to keep for the foreseeable future. Its business may be jeopardised if it cannot provide new features for existing or new services that keep pace with rapid technological advances.

Outlook

• Looking ahead, CRM estimates revenues in Q1FY23 to be between USD 7.37 and 7.38 billion, up 24% year over year. Non-GAAP EPS is forecast to be in the range of USD 0.93 – 0.94. GAAP earnings (loss) per share (EPS) are expected to be in the range of USD (0.05) to (0.04).
• Revenues for FY23 are estimated to range between USD 32.00 and USD 32.10 billion, reflecting a 21% increase year over year. On a GAAP and Non-GAAP basis, it expects operating margins of roughly 3.6% and 20%, respectively. It also expects GAAP EPS in the range of USD 0.46 to 0.48 in FY23. Operating cash flow is expected to grow at a pace of 21 to 22% year over year in FY23.
  

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock has fallen 27.05% in the past six months. The stock is currently leaning towards the lower band of its 52-week range of USD 184.44 to USD 311.75. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of mid-twenties (in percentage terms). CRM can trade at a premium to its peers' average due to its market domination in the cloud-based application software industry, healthy profit margins, and global market presence. We have taken peers like Adobe, Inc. (NASDAQ: ADBE), Intuit Inc (NASDAQ: INTU), and others. Given the company's decent top-line performance, robust cash flows, strong collaborations, upbeat outlook, increased workforce, underutilised CAPEX activities, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 200.82, down ~4.44%, as of April 06, 2022.

CRM Technical Chart, Data Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.