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Proprietary Data Insights Financial Pros’ Top App. Software Stock Searches in the Last Month
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CRM: Stealth Powerhouse of Generative AI |
Generative AI is fueling interest in every industry, from design to construction. Everyone wants to hop on the bandwagon. Yet, few can leverage the technology to gain a true edge. While most are focused on cool artwork and ChatGPT, Salesforce (CRM) found innovative ways to incorporate generative AI, such as its Einstein GPT and AI Cloud. The company generated a lot of interest amongst financial pros and retail investors with their latest earnings report at the end of last month. Salesforce’s Business Salesforce is a high-tech company that lives in the cloud, supplying top-notch customer relationship management (CRM) software to help businesses manage all sorts of tasks. Think of it as a magic toolbox that helps businesses make a deeper connection with their customers. They want to prove that doing well in business can also mean doing good for people and the planet. They also own a massive campus in downtown San Francisco. The star of the Salesforce show is its “Customer 360” suite. This brings all parts of a business, from sales and marketing to customer service and IT, together. The bonus is it also lets users tailor apps to their needs and blend in other data and AI models. When it comes to its revenue, Salesforce splits it into four parts:
Salesforce charges subscription fees for these cloud-based tools and applications. Additionally, they also have a consultancy service for implementation and training, and they even invest in other companies through Salesforce Ventures. The company recently laid out their plans to incorporate AI during its June 12 webcast:
The company’s Q1 2023 was a mixed bag. Revenues were up 24% YoY with a record operating cash flow of $3.68 billion. Salesforce also announced exciting partnerships with Amazon Web Services and Zoom. However, this quarter, the company grappled with strong competition, costly acquisitions and integrations ($0.42 billion), regulatory challenges ($0.15 billion), and COVID-19 related obstacles ($0.10 billion). Looking forward, Salesforce plans to invest in new products, integrate Slack, expand geographically and industrially, and concentrate on customer retention and social responsibility. Financials
Source: Stock Analysis Salesforce delivers double-digit revenue growth every year while maintaining its gross margins. Operating margins tend to vary wildly largely due to SG&A, which is typically more than 50% of revenues. The last year has been impressive for CRM as it nearly reached $8 billion in operating cash flow, which it has used to buy back heavy amounts of stock. Salesforce carries just under $14 billion in debt, which it holds equal amongst in cash. That gives the company plenty of firepowers to invest when and where it needs. Valuation
Source: Seeking Alpha CRM is valued pretty evenly with most of its peers. On a non-GAAP P/E basis, CRM is in the middle at 35.1x while Adobe (ADBE) is a touch lower with DocuSign (DOCU) as the cheapest. But on a price-to-cash-flow basis, CRM is a bit below ADBE, which is about even with Intuit (INTU), while DOCU is again the cheapest. Growth
Source: Seeking Alpha In terms of growth, CRM lands pretty much in the middle on revenues. However, it’s one of the best when it comes to EBITDA and EBIT growth, especially over multiple years. Profitability
Source: Seeking Alpha Again, we were a bit surprised to see how close most of the gross margins were with five9 (FIVN) being the only one with less than 70%. However, the difference in profitability becomes obvious when you look at EBITDA and especially EBIT margins. Nonetheless, that doesn’t translate into cash as CRM still comes in near the top for free-cash-flow margin. Our Opinion 8/10 Salesforce is a great company that continues to perform year after year. They’re incorporating AI in strategic ways to enhance and expand their products. While the stock is stretched in the short-term, anything back near $150 would make this a 10/10 for us. |
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