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Stock Analyst Update

Salesforce Continues Winning Ways, Shares Undervalued

The wide-moat firm continues to see strength across all of its major cloud properties, and we're boosting our fair value estimate by about 9%.


 Salesforce (CRM) reported strong first-quarter results that reflected strong multiproduct deal flow in the quarter. We received management’s initial revenue outlook for MuleSoft, which came in roughly 10% ahead of our initial expectations at the high end of the range. Salesforce continues to see strength across each of its major cloud properties, and we were encouraged to see continued stability in sales cloud growth rates, as these deals typically lead to incremental application consumption as the customer relationship matures. We are maintaining our wide moat and positive moat trend ratings. We have incorporated management’s high-end target of $315 million in revenue for MuleSoft for the balance of the year, and we have raised our longer-term revenue assumptions toward the midpoint of management’s fiscal 2022 revenue range of $21 billion-$23 billion. As a result, we are raising our fair value estimate to $158 per share from $145, and shares remain undervalued at current levels.

First-quarter revenue rose 25% versus the prior-year period to $3.01 billion, slightly ahead of our expectations. Management spoke at length about a number of large wins in the quarter (despite what is typically a seasonally weak period for new business), including a transformational deal with an insurance company that was one of the largest signed in Salesforce history. We think this sort of demand is a reflection of Salesforce’s best-in-class product offering across the CRM suite, as the company continues to take share across its sales, service, and marketing cloud products. Marketing cloud was a bright spot in the quarter, as revenue rose 41% year over year, an acceleration from the 33% growth rate the business generated in the fourth quarter. We believe commerce cloud is beginning to lower barriers to adoption of the broader marketing Cloud for both B2C and B2B customers alike as enterprises increasingly focus on omnichannel sales strategies.

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Rodney Nelson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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