fbpx

Salesforce (CRM)

The markets have been undergoing a significant shift in the last month – away from technology stocks and into areas that were impacted heavily by the global pandemic. Financials, Energy, and material stocks have all benefitted at the expense of the big and small tech names who one could argue got way ahead of themselves during the frenzied panic that was 2020.

The pullback has been swift and powerful. The Nasdaq officially went into correction at Monday’s close. Down 10% from its record highs on February 12. Previous to this it had ridden a 30% move higher since the bull market officially began back in September of 2020. The Nasdaq also went into negative territory for 2021 this week in contrast to its fellow major indices the Dow and the S&P500, which are up 1.7% and 3.9% respectively.

Stocks that flew during the global shutdowns have been walloped. Covid darlings Peleton and Zoom are down 37% and 44% from their heady highs of 2020. Zillow has lost more than 40%, and Roku is 32% lower. Even the big-name brands haven’t escaped unscathed. Apple has lost 20% from its yearly highs, Amazon 17%, Netflix 17%, Microsoft 8%, and the list goes on and on. It has been a nondiscriminatory selloff. Virtually no tech names have been spared.

Such situations where stocks are sold off regardless of the underlying fundamentals often produce great buying opportunities. And if you sift through the list of tech names there are plenty of discounted buying opportunities at the moment. Today’s stock report subject Salesforce is just such a stock. It’s underperformed the Nasdaq by 22% in the last three months, but it has actually been trending lower since August of 2020, around the same time it was added to the Dow index. This last little tech correction has pushed it nicely into buy territory.

Salesforce is an SaaS (software as a service) company that is best known for its customer relationship management system. They specialise in helping businesses move their work into the cloud while helping them better connect with customers and partners. Jim Cramer, of Mad Money fame, calls them the “Cloud King”. According to Salesforce, their primary focus is on helping companies with customer retention, keeping customers happy, acquiring new customers, and providing analytics on what their customers need for a positive interaction with the company.

The CRM leader is deep within a building cycle where it is acquiring relevant businesses to improve its offering to customers and steal market share off of its rivals. The purchases have had a negative impact on profits and on its share price. The latest deal was the $27.7 billion takeover of Slack Technologies. It is Salesforce’s largest purchase in its history and at the time was the second-largest software industry acquisition of all time.

Slack specialises in remote working software and Salesforce strongly believes that being able to add this component to their current CRM offering will greatly enhance its attractiveness to the market. And if you’ve been reading our stock reports over the last year you’ll know that we think working from home will be the way of the future, and strongly agree with this strategy. Investment now will pay off exponentially in the future.

Previous to this, in 2019 Salesforce bought data analytics specialist Tableau for $15.7 billion. It then went about implementing Tableau’s artificial intelligence software into its Customer 360 product. CEO Mark Benioff has humbly called it “the most successful acquisition in the history of the software industry”. To be fair, it’s been an undoubted success. Salesforce’s platform unit has increased revenue by more than 60% in 2020 and two-thirds of this was thanks to the Tableau purchase. It’s a great sign when the company leaders know what they are doing.

So while revenue increased by 24% for the fiscal year that ended on 31st of January, and guidance for the current year was for revenue growth of more than 20%, guidance for earnings per share has gone negative to $0.44. This is down from a positive $4.38 from the fiscal year just gone. It’s got investors spooked but Benioff states it’s no time to be looking at the bottom line. You have to spend money if you want to be one of the biggest companies in the world.

The spending they have made will give them a product that will be a market leader for years to come. Tech researcher IDC predicts that spending on digital transformation will increase from $1.3 trillion in 2020 to $2.4 trillion in 2024. In turn, at its last investor day in December, Salesforce said it hopes to double its revenue to more than $50 billion in the next five years. It’s already the market leader in CRM offerings with more than 20% of market share. Oracle is in second place but can only manage 5%. That means there are lots of smaller players out there, and this is where Salesforce is targetting growth. It’s our opinion that it is very well placed to do this.

Don’t be put off by the falling share price. Salesforce is in a building phase and the cheaper price just creates a great buying opportunity. It’s only been exacerbated by the recent tech selloff. The money they have invested in growth will pay off for years to come as they build their brand and take market share away from competitors. We see CRM as a company that will go from strength to strength, and one to hold in your portfolio long term.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
Tags: