Company Reports

We believe Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability. Even as revenue growth has decelerated over time, we believe a new focus on margin expansion, share buybacks, and dividends should continue to compound strong earnings growth for years to come.

Late on April 12, The Wall Street Journal reported that wide-moat Salesforce was in talks to acquire Informatica. Since there is no official announcement, we are addressing the report without any context, such as deal price, rationale, or longer-term plans. With no real information to assess, we are maintaining our $300 fair value estimate and see the shares as slightly undervalued after the April 15 selloff.

Salesforce continues to perform well in what remains a tight demand environment, with upside versus our expectations on both the top and bottom lines for its fiscal fourth quarter. Guidance was mixed, with revenue slightly worse than we expected while earnings per share, or EPS, was slightly better. The biggest headline is the capital allocation strategy evolution, with the buyback program expanded by another $10 billion and the establishment of $0.40 quarterly dividend. Management was enthusiastic in its discussion of everything AI, which we think will be an area of strength for Salesforce, with the Einstein 1 Platform already generating revenue. Based on continued quarterly upside and new guidance, we are raising our midterm profitability estimates and are raising our fair value estimate to $300 per share, from $265. We see the stock as fairly valued.

We believe Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability. Even as revenue growth has decelerated over time, we believe a new focus on margin expansion, share buybacks, and dividends should continue to compound strong earnings growth for years to come.

Salesforce continues to perform well in a measured environment, with upside versus our aggressive expectations for both revenue and profitability for its fiscal third quarter. Guidance, particularly for profitability, was also good. Management was enthusiastic to discuss green shoots in data cloud, while we were impressed by performance in large deals and the acceleration in remaining performance obligation, or RPO, growth. We also applaud the firm’s continued focus on capital returns, with $1.9 billion in share buybacks this quarter. Based on quarterly upside and updated guidance, we made minor adjustments to our model and raised our fair value estimate to $265 per share, from $255. With shares jumping in the aftermarket the stock seems slightly undervalued, in our view.

We believe Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability. Even as revenue growth has decelerated over time, we believe a new focus on margin expansion should continue to compound strong earnings growth for years to come.

Salesforce delivered another good quarter with revenue and profitability ahead of our expectations. Based on quarterly upside and updated guidance, we refined our model toward slightly better profitability, and as a result we raise our fair value estimate to $255, from $245. We still see some upside from here for shares.

We believe Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability. Even as revenue growth has decelerated over time, we believe a new focus on margin expansion should continue to compound strong earnings growth for years to come.

Salesforce hosted its artificial intelligence event where the company discussed its AI strategy, advancements in generative AI technology, and some of its key solutions. Importantly, Salesforce made a variety of product announcements, none more important than AI Cloud, while advancing the theme of trust in its AI architecture. We have repeatedly highlighted that despite a lack of high-profile announcements (until today) related to generative AI, Salesforce has been a leader in artificial intelligence for years already. We appreciate the firm making the case loud and clear at the event. While we think AI Cloud supports our wide moat rating and will likely be additive to growth over the next few years, we do not think it necessitates a change in our model, especially given the uncertainty around generative AI.

Salesforce continues to impress, with another strong quarter with revenue and profitability ahead of our expectations. We fine-tuned our model over the next couple of years with profitability moving tad higher, offset by slightly lower growth, resulting in an unchanged fair value estimate of $245. Shares look attractive especially in light of the modest selloff in the aftermarket, and the stock remains one of our top picks.

We believe Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability. Even as revenue growth has decelerated over time, we believe a new focus on margin expansion should continue to compound strong earnings growth for years to come.

Salesforce delivered an epic quarter in what we believe is truly a seminal moment within its lifecycle. For its fiscal fourth quarter, the company delivered substantial upside to both revenue and profitability, which is an impressive achievement. However, the company’s pivot toward profitability over the next two years was well beyond our expectations. Further, the company has already expanded its share repurchase authorization to $20 billion, from $10 billion previously, while also disbanding its mergers and acquisitions committee as the company focuses on organic growth. We think this margin expansion is achievable and, in turn, we are raising our fair value estimate to $245 per share from $220. Shares look attractive even after an aftermarket pop, and the stock remain one of our top picks.

We believe Salesforce.com represents one of best long-term growth stories in software. Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, we believe ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer.

For its fiscal third quarter, Salesforce delivered modest upside relative to our revenue expectations and more meaningfully outperformed our margin estimate despite foreign currency headwinds that continue to worsen. Fiscal fourth-quarter guidance, however, was slightly shy of our model. Sales cycle elongation and deal size compression that began in July intensified this quarter, while management commented they expect these conditions to persist into next year. We lowered our estimates for fiscal 2024 in anticipation of a persistently challenging macro environment and then also made some minor related smoothing adjustments to our model. As a result, we are lowering our fair value estimate for wide-moat Salesforce to $220, from $240 previously. On the positive side, management stated the firm continues to build a healthy sales pipeline, and the company bought back 11 million shares for $1.7 billion. Salesforce remains one of our top software picks and we applaud the company’s increasing focus on margins along with the newly implemented $10 billion buyback program.

We believe Salesforce.com represents one of best long-term growth stories in software. Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, we believe ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer.

The biggest investor news from wide-moat Salesforce’s investor day was the reiteration of full-year guidance of $31 billion at the high end for fiscal 2023; the reiteration of $50 billion in revenue for fiscal 2026—despite a $2 billion headwind from foreign exchange over the last year; and the new long-term guidepost for 25% or higher non-GAAP operating margin for fiscal 2026. Along with several other product announcements, the company also introduced Genie, a new customer data platform to infuse real-time data across clouds. Lastly, Salesforce also provided an updated capital allocation strategy, a current total addressable market, or TAM, analysis, and incremental disclosures around contract length, cloud uptake, cohort analysis, and retention. We continue to view the stock as one of our top picks, maintain our fair value estimate of $240 per share, and see shares as attractive.

Wide-moat Salesforce delivered upside relative to our expectations for revenue and profitability despite worsening currency headwinds and buying patterns that began to deteriorate in July, when sales cycles began to elongate and deal sizes were pressured. The company lowered its outlook for the year based on worsening currency effects and the expectation that buying behavior will not change from what it experienced in July. On the positive side, management still characterized the demand environment and new pipeline generation as solid, with an emphasis on front office digital transformation efforts, which is Salesforce’s sweet spot. The company also announced a $10 billion stock buyback program, a first for the company. Given deteriorating conditions and a more pessimistic outlook, we are reducing our estimates and cutting our fair value estimate to $240 from $305. Salesforce remains one of our top software picks and we applaud the company’s increasing focus on margins along with the new buyback program.

We believe Salesforce.com represents one of best long-term growth stories in software. Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, we believe ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer.

We believe Salesforce.com represents one of best long-term growth stories in software. Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, we believe ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer.

Investors looking for signs of broader enterprise software slowdowns will have to look elsewhere after wide-moat Salesforce reported solid results in the face of a variety of macroeconomic headwinds. Both revenue and non-GAAP operating margin a bit better than our expectations, while full-year revenue guidance was lowered slightly entirely due to the surging dollar, and full-year non-GAAP operating margin guidance was raised modestly. Management acknowledged the same macro headline issues we see every day but noted the firm is seeing no weakness in demand and that its pipeline for the year remains robust. Given the macro storm clouds, we are taking our estimates from above previous guidance, to more in-line with new guidance, and are therefore lowering our fair value estimate to $305 per share, from $320 per share. Salesforce remains one of our top software picks and we view shares as attractive, as we think investors are overly pessimistic on near-term fears.