Salesforce Inc. (NYSE: CRM), formerly Salesforce.com, Inc., is a customer relationship management (CRM) software company. Its customer 360 platform provides a single source for connecting customer data across systems, apps, and devices, allowing businesses to sell, service, promote, and do business from anywhere.

Recent Developments

• On June 9, 2022, Paul Chesser, Director of the National Legal and Policy Centre’s (NLPC) Corporate Integrity Project, spoke at Salesforce Inc.'s annual meeting to support a shareholder resolution submitted by the ethics organization. The proposal called for the board of directors to adopt a policy requiring the chair of the board of directors to be an independent member. Marc Benioff now serves as Chairman and Co-CEO of Salesforce Inc.
• On June 8, 2022, Neustar, Inc., a TransUnion company, announced that it has joined the expanded Marketing Cloud Customer Data Platform ecosystem on Salesforce AppExchange, enabling brands to better understand their customers, drive personalization at scale, and unlock new opportunities that help them grow faster.

Key Takeaways from first quarter FY23 financial results

• Total sales for the first quarter were USD7.41 billion, up 24 percent year over year and 26 percent in constant currency. For the quarter, subscription and support sales were USD6.86 billion, up 24 percent year over year. Professional services and other sales totaled USD0.56 billion in the third quarter, up 30% year over year.
• The GAAP operating margin in the first quarter was 0.3 percent, whereas the non-GAAP operating margin was 17.6 percent.
• GAAP diluted earnings per share were USD0.03 in the first quarter, but non-GAAP diluted earnings per share were USD0.98. Mark-to-market accounting of the company's strategic investments improved GAAP diluted earnings per share by USD0.01 based on a 25 percent U.S. tax rate and non-GAAP diluted earnings per share by USD0.01 based on a 22 percent non-GAAP tax rate.

Balance Sheet & Liquidity Position

• The amount of cash created from operations in the first quarter was USD3.68 billion, up 14% year over year.
• Cash, cash equivalents, and marketable securities totaled USD13.50 billion at the end of the first quarter.
• The outstanding performance obligation concluded the first quarter at about USD42.0 billion, up 20% year over year, while the current remaining performance obligation completed the first quarter at roughly USD21.5 billion, up 21% year over year and 24% in constant currency.
• Long-term debt was USD9.59 billion at the end of the first quarter of 2022, down from USD10.59 billion at the end of the first quarter of 2022.

Key Risks

• Dependence on Third parties: Customers in the United States and other countries are currently served via third-party data centres and cloud computing platform providers. To deliver its services, it also uses computer equipment purchased or leased from third parties, as well as software licensed from third parties. Service outages might happen from any disruption, damage, or failure of the company's systems, including third-party platform suppliers, resulting in revenue and cash flow losses.
• Foreign Currency Risk: CRM operates in several worldwide markets, including the Americas, Europe, and the Asia Pacific, and most of its transactions are conducted in foreign currencies. It is exposed to foreign currency risk since it does business and invests in other currencies.

Second Quarter and full-year Guidance for 2023

Q2FY23 and FY23 Guidance (Source: Q1FY23 Earnings release)

Top 10 shareholders

The top 10 shareholders together form around 34.68% 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 7.80% and 5.97%, respectively, as also highlighted in the chart below:

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology: Price/ Earnings Multiple - based Relative Valuation

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

Over the past six months, CRM’s share price has corrected by 35.18%. The stock is currently leaning towards the lower end of its 52-week range of USD 154.55 to USD 311.75. We have valued the stock using the Price/Earnings multiple-based relative valuation method and arrived at a target price of USD 202.89. We believe that the company is trading at a premium from its peer's average considering strong fundamentals, and competitive advantages in profitability margins give bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, positive outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 168.55 as of June 15, 2022.

One Year Technical Chart, as of June 15, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

*Closing Price as of June 15, 2022.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and a 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 against further losses in case

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

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

Note 3: The report publishing date is as per the Pacific Time Zone