Salesforce (CRM): Solid Fundamentals and Technical Analysis

26 באוק׳ 2020

Software as a Service (SaaS) is at the center of attention due to the Coronavirus pandemic (Covid-19).
Today, I’ll be analyzing the #1 firm in the Customer Relationship Management industry, Salesforce (CRM).

- Salesforce is an extremely quickly growing business, whose founder was an ex-Oracle (ORCL) employee.
- They currently employ the tallest building in San Francisco
- Salesforce was added to the Dow Jones Industrial Average, and became the first Saas company to be listed on the S&P500 index.

What is CRM?
- CRM stands for Customer Relationship Management.
- It’s essentially a software that allows salespeople to manage client info data
- CRM, fundamentally, is a tool to drag new clients, maintain loyal customers, and increase customer value
- Prior to Salesforce, companies such as Oracle (ORCL) and IBM (IBM) had to sell hardware, and the software license of the hardware, which all had tremendous installation costs.
- As a result, CRM was selectively used by few major corporations
- Salesforce revolutionized the marked by making CRM more approachable
- They offered CRM through cloud computing, and became the first company to sell software through cloud computing systems. As such, Salesforce managed to offer CRM at a price 90% cheaper than the original cost
- CRM is effectively used to provide data for artificial intelligence, and machine learning protocols, and is much more closely related to our lives than we know, from a marketing aspect.

Financials
- Despite having been in business for over 22 years, Salesforce shows a 29% yoy revenue growth-
- This is due to their multi-cloud strategy in which they aggressively acquire other software companies
- They reached a record quarterly revenue of $5.15 billion in Q2 2020
- This was mainly due to the explosive demand for work.com, a product that was developed for the Coronavirus pandemic situation.
- For the third quarter, Salesforce speculated a revenue of $5.24 billion, which is a 16% increase compared to last year.
- The company’s free cash flow increased by 22% in Q2, compared to that of last year, and is estimated to generate $35 billion in 2020.
- Salesforces’ Price-to-sales multiple remained at 8-10, indicating that it is relatively undervalued compared to its software counterpart, Adobe.

Business Model
- Salesforce is well known for its aggressive acquisition of cloud related companies.
- By offering marketing, commerce tools, and service cloud to existing Sales Cloud clients, they gather more meaningful data and expand potential client bases
- Over 40% of users use multiple clouds, and these people are responsible for 93% of the company’s revenue.
- Salesforce offers Service Cloud, which is a service that helps customer support and operations management.
- By acquiring Exact Target in 2013, Salesforce has been expanding its marketing cloud base.
- The marketing automatization that Exact Target has, allows Salesforce to incorporate cloud computing to emails, social media, messages, and digital apps
- By doing this, they can accurately track the efficiency of marketing campaigns, and optimize advertisements
- What’s most important to notice about Salesforces’ business model is that just like many other successful businesses, it has managed to establish a cloud ecosystem
- Their AppExchange offers optimized CRM tool kits, and institutional level software
- Salesforce also runs the Lightning Platform, which allows users to develop software that is optimized for their specific industry and business
- Salesforce acquired MuleSoft, a data compiling company, and Tableu, a data analytics company, and this synergy is expected to generate exponential gains in the coming years.
- In essence, Salesforce is capitalizing on an opportunity, during times of a digital turning point, by compiling data and software on a single platform

Technical Analysis
- CRM is currently moving in a clear uptrend, forming higher lows
- It has recently topped out after having been listed on the Dow Jones Industrial Average (DJI), but shows strong support in critical areas
- We are at a point where prices are testing the 0.236 Fibonacci retracement support
- This zone of support is about to converge with the 60 Simple Moving Average (SMA) as well
- The Relative Strength Index is moving towards to the oversold territory, having been at extremely overbought levels at the local top

Conclusion
Salesforce (CRM) is the dominant #1 in the CRM industry. Just as many other successful companies, it possesses a healthy ecosystem, specifically of cloud computing. Fundamentally, it has all the right components of a successful business model, and while the earnings are not as high as we would expect, due to mergers and acquisitions, their profitability can increase significantly over the coming years. Technical analysis also demonstrates a clear uptrend, and a potential buy opportunity.

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