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blue-chip

Should You Buy This NYSE-Listed Software Stock – CRM

Feb 15, 2022 | Team Kalkine
Should You Buy This NYSE-Listed Software Stock – CRM

Salesforce.com, Inc.

 

CRM Details

Salesforce.com, Inc. (NYSE: CRM) is a global pioneer in customer relationship management (CRM) technology, bridging the gap between companies and customers. Its Customer 360 platform connects customer data across systems, apps, and devices to provide a single source of truth, allowing businesses to sell, service, and conduct business anywhere. It also offers solutions including Service Cloud for customer care, Marketing Cloud for digital marketing campaigns, Commerce Cloud for e-commerce, and MuleSoft for data integration.

Latest News:

  • Collaboration with Holiday Inn Club: On February 7, 2022, CRM's subsidiary MuleSoft, a developer of integration and API platforms, announced a partnership with Holiday Inn Club Vacations to create a single vacation booking system that provides unified digital experiences for the company's members. Holiday Inn Club Vacations uses MuleSoft to connect disparate data, apps, and systems, making buying vacation packages easier and maintaining ownerships from a single booking system. Families may now book their dream vacations more easily and quickly than ever before.
  • Launch of Safety Cloud: CRM introduced Safety Cloud on February 1, 2022, to assist people in gathering safely. Safety Cloud helps businesses and communities better manage testing, health, and entry protocols to create safer in-person experiences at events and in the workplace, building on CRM's event and workplace experience — and expanding on existing health and safety innovations announced in December.

Q3FY22 Results:

  • Growth in Revenues: CRM reported YoY growth of 26.65% in total revenues to USD 6.86 billion Q3FY22 (ended October 31, 2021) from USD 5.42 billion in Q3FY21, attributable to volume-driven increases from new business and pricing improvements.           
  • Decline in Bottomline: Net income was USD 468 million in Q3FY22, compared to USD 1.08 billion in Q3FY21, representing a diluted EPS of USD 0.47.
  • Improvement in Headcount: CRM has increased its headcount by 37% since October 31, 2020, in response to increased consumer demand for services, and the recent acquisition of Slack has also aided this expansion.
  • Cash and Debt Position: The company had USD 9.39 billion in cash and cash equivalents (including marketing securities) as of October 31, 2021, and total debt of USD 10.59 billion.

Key Risk:

  • Dependence on Third-Parties: Customers in the United States and other countries are currently served via third-party data center hosting facilities and cloud computing platform providers. It also uses computer hardware purchased or leased from third parties and software licensed from third parties to perform its services. Any disruption or damage to, or failure of, the company's systems in general, including those of its third-party platform providers, could result in service disruptions, affecting revenues and cash flows.

Outlook:

  • Q4FY22 Guidance: As of Q3FY22, CRM expects Q4FY22 net sales to be about USD 7.224 – 7.234 billion, representing a YoY increase of ~24%. It also predicted GAAP Earnings (loss) per share (EPS) to be in the range of USD (0.24) – (0.23) and Non-GAAP EPS to be in the range of USD 0.72 – 0.73 in Q4FY22.
  • FY22 Guidance: In FY22, CRM expects to clock revenue in the range of USD 26.39 – 26.40 billion, representing a 24% growth YoY. CRM also expects its GAAP operating margin to be around 1.8%. It also expects FY22 GAAP EPS to be in the range of USD 1.28 – 1.29.
  • Q1FY23 Guidance: The company also projected its FY23 revenues to be around USD 31.7 – 31.8 billion, along with a GAAP operating margin of around 3.0 – 3.5%. 

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(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:

CRM's stock price has fallen 32.23% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 201.51 to USD 311.75. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 254.76.

Considering the significant correction in the stock price, strong topline performance, industry above net margin and ROE, collaboration with Holiday Inn, launch of safety cloud, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 206.97, down 0.45% as of February 14, 2022, at 01:36 PM ET.

Three-Year Technical Price Chart (as on February 14, 2022, at 01:36 PM ET). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary: