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.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Rodney Nelson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.