Salesforce (NYSE:CRM) stock is on the minds of investors Friday as they react to reports of layoffs and a hiring freeze at the U.S. cloud company.
According to reports, the company has laid off “at least 90 employees.” The reasons behind the Salesforce layoffs, as well as the finer details of the job cuts, are unknown. However, the cuts appear to be limited to mostly contract workers.
A statement from Salesforce backs this up. The company says it has ended relationships with “some temporary recruiting contractors.” These contractors were brought on for a short time to help bolster numbers during a hiring period.
Insiders claim that Salesforce only opened up to hiring new employees for about one month. Adding to that, the company noted to Protocol that “most departments have reached their hiring goals for the fiscal year.”
Sources close to the matter claim that Salesforce’s hiring freeze is set to last until January 2023. Investors following CRM stock will remember that the company also enacted a hiring freeze back in May 2022. All of this comes as tech stocks deal with the ongoing effects of inflation, rising interest rates and a recession.
CRM stock is down 1.3% as of Friday afternoon and down 44% since the start of the year.
There’s more exact stock market news investors will want to know about below!
InvestorPlace has all of the hottest stock news traders need to know about for Friday! That includes all of the latest news concerning shares of Plug Power (NASDAQ:PLUG), Eargo (NASDAQ:EAR) and Castellum (NYSEMKT:CTM) stock today. You can catch up on all of that news at the following links!
On the date of publication, William White did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Shares of Salesforce and Microsoft are trading higher Monday morning, leading the Dow Jones Industrial Average rally. Shares of Salesforce and Microsoft have contributed about a third of the blue-chip gauge's intraday rally, as the Dow was most recently trading 528 points higher (1.8%). Salesforce's shares are up $6.08, or 4.3%, while those of Microsoft have gained $8.43 (3.7%), combining for a roughly 96-point bump for the Dow. Also contributing significantly to the gain are JPMorgan Chase Walt Disney and American Express A $1 move in any one of the 30 components of the Dow results in a 6.59-point swing.
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Bret Taylor, co-chief executive officer of Salesforce.com Inc., right, and Marc Benioff, co-chief executive officer of Salesforce.com Inc., wear rabbit ears during a keynote at the 2022 Dreamforce conference in San Francisco, California, on Tuesday, Sept. 20, 2022.
Marlena Sloss | Bloomberg | Getty Images
Salesforce stock rose almost 3% in extended trading on Wednesday after the enterprise software maker announced a new long-range profitability goal that showed the company's determination to operate more efficiently.
Several cloud software companies, including Salesforce, have become less compelling to investors as interest rates have risen to respond to higher prices this year, after becoming more glamorous during the Covid pandemic, when organizations boosted their use of programs employees could use without being in offices.
Management teams at cloud companies have sought to recapture interest by emphasizing cost-savings plans and pull forward their timelines for profitability. Salesforce itself said it would be more careful in adding talent.
The company went further on Thursday, as Amy Weaver, Salesforce's finance chief, revealed new targets for the 2026 fiscal year at the company's investor day, taking place in San Francisco during its Dreamforce conference. The company is aiming for a 25% adjusted operating margin, including future acquisitions, she said. That compares with the 20% target Salesforce announced one year ago for its 2023 fiscal year. The adjusted operating margin was 19.9% in the quarter that ended July 31.
Salesforce indicated that it intends to push adjusted sales and marketing spending as a percentage of revenue below 35% by 2026 through increasing self-serve efforts, alliances with partners, and productivity improvements for salespeople. In marketing, the idea is to draw on proprietary marketing channels. Sales and marketing on a GAAP basis took up over 44% as a percentage of revenue in the July quarter.
Additionally, Salesforce is eager to manage general and administrative spending, in part by evaluating real estate assets for a hybrid workplace.
Weaver reiterated the $50 billion revenue target for fiscal 2026 that it announced one year ago, but she said that the figure now takes into account a $2 billion headwind from exchange rates since last year's investor day.
Shares of Salesforce reached a 52-week low on Wednesday. The company has begun buying back its own shares as part of its first share-repurchase program, Weaver said.
Buying stocks during a bear market can yield spectacular returns. For instance, the bear market brought on by the Great Recession cratered the S&P 500 by 56.8%, from peak to trough. But smart investors knew it was a once-in-a-lifetime opportunity to buy.
The index closed on March 9, 2009, at its bottom of 676.53. The ensuing bull market rally lifted the S&P 500 to its peak of 3,386 11 years later, on Feb. 19, 2020. Steadfast buy-and-hold investors would've achieved a remarkable 400.5% gain just by buying the index.
Buying an index is not a bad idea. Still, bear markets allow investors to buy beaten-down shares of great companies, outperform the market, and accumulate phenomenal wealth.
On the day the S&P 500 bottomed, Salesforce (CRM 4.18%) closed at $7.72 per share. If you plunked down $1,000 at that price, you'd have 129 shares. If you had the fortitude to never sell a single share for the entire 11-year rally, your shares would've been vaulted to $192.87 per share, earning you a hefty 2,398% gain -- dramatically outperforming the market during that 11-year span.
To put the Salesforce investment in an even longer-term perspective, your guts to buy in a bear market, loyalty to the buy-and-hold strategy, and your $1,000 would equate to $19,371.93 today.
Salesforce has long been a cloud-based software growth story. The company's incredibly popular customer relationship management (CRM) software has given its corporate users' sales teams the collaboration and marketing tools to strengthen customer relationships and expand their sales opportunities. In short, Salesforce helps its users increase revenue and become more efficient sales machines.
Over Salesforce's history, it has accumulated an impressive catalog of clients. As an ingrained part of each customer's business, Salesforce is in a perfect spot to sell them additional software and services. As such, the company has been busy acquiring companies with adjacent services and upselling them to its existing customers.
For example, it acquired ExactTarget in 2013, with just $286 million in revenue. Since then, Salesforce has grown its revenue by 949% to $3 billion. Salesforce later took over MuleSoft in 2018, when it had $284 million in revenue. The company grew its revenue by 499% to $1.7 billion.
Salesforce's latest (and largest) acquisitions offer what are perhaps its most significant opportunities. The company bought Tableau in 2019 and Slack Technologies in 2021. Revenue at those two companies has already grown, which may be the next chapter of Salesforce's growth story.
When examining Salesforce's revenue history, it's easy to see that its products work. It finished its fiscal year as a publicly traded company in 2005 with $176 million in recurring software revenue. Seventeen years later, in fiscal 2021, the company had vaulted its revenue by 14,952% to $26.5 billion. The company's astonishing revenue growth has done wonders for the stock, but nowadays, investors want to see profits.
Salesforce's full fiscal year ending Jan. 31, 2022, included an adjusted operating margin of 18.7%. But during the company's annual investor conference this month, Salesforce's management shared some exciting news that seems to have fallen on deaf ears. Management forecasts that by 2026, the company will nearly double its revenue to over $50 billion, and its adjusted operating margin will soar to 25%.
Yet Salesforce stock is down since the announcement and has shed 41% this year. Wall Street analysts expect Salesforce to generate $4.74 in earnings per share for its current fiscal year. That number implies a forward price-to-earnings ratio (based on forecasts) of 31 times, which is considerably more attractive than its five-year average of 57 times. Given Salesforce's growth trajectory, the bear market is giving smart long-term investors a gift.
There is no telling when today's bear market will give way to the bulls. But the stock market is always forward looking. So, the risk of waiting for good macroeconomic news is missing out on the recovery. Buying the stocks of great companies at depressed prices is a recipe for market-beating returns. Even if it means the bear market persists for a while, it's better than suffering from the regret of missing out on opportunities like this.
If you ask 100 different investors if a stock is under- or overvalued and why, you're likely to get 100 different answers. If everyone knew a stock was undervalued, they would purchase it, which would drive the price up, and then it wouldn't be undervalued anymore.
However, going through the exercise to determine if a stock is undervalued is vital, as your research could yield significant returns. Today, I will dig into Salesforce (CRM 4.18%).
You can get a clue as to what Salesforce does by looking at its ticker: CRM. CRM is a common acronym that stands for customer relationship management, basically how a business interacts with current and prospective clients. The primary way to grow a business is by obtaining new customers and getting existing ones to spend more, so this software is vital for nearly every business.
CRM platforms have many capabilities, like marketing, customer service, and sales. By combining these operations into one software bundle, businesses can be more efficient in dealing with customers.
The CRM market opportunity is enormous, with the market expected to reach $158 billion by 2030, growing at a 13.3% annual rate from 2022 on.
That's an impressive market, but what's Salesforce's position in it? According to Statista, Salesforce controlled about 23.8% of the market in 2021, dwarfing second-place SAP's 5.4% market share. Furthermore, Salesforce's market share is growing, showing it is still the top pick for many businesses.
Salesforce's market leadership position in a growing industry checks many investment boxes. But how about its financials?
Despite a tricky second-quarter environment, Salesforce did well. Many businesses were not interested in purchasing new enterprise software. It's a cumbersome task, expensive, and has a steep learning curve. None of these activities are wise to do when the economy is struggling. If a business adopts new software, it's likely mission-critical and must provide significant value to the business.
In Salesforce's Q2 (ending July 31), revenue rose 22% YOY (year over year) to $7.72 billion. However, it lowered its fiscal-year 2023 (ending Jan. 31, 2023) revenue guidance from $31.75 billion to $30.95 billion. Nevertheless, this guidance still indicates 16.8% YOY growth -- not too bad for the current environment.
Remaining performance obligations (RPO) only rose 15% YOY. This trend is disappointing, as RPO is an indicator of future revenue. Still, this can be interpreted two ways. First, the difficult environment caused companies to pull back their spending, and this lost revenue will eventually return. Second, Salesforce has penetrated its market entirely, and its only growth will come from market expansion (projected to be 13.3% growth through 2030, as mentioned above).
When a growth stock's business begins to slow, investors demand profits. Profits have been slim in Salesforce's life as a public company, but management is projecting a 3.6% GAAP operating margin for FY23 (its current fiscal year). Much of Salesforce's losses come from heavy stock-based compensation -- in Q2, it was $851 million, or 16% of all operating expenses.
However, stock compensation is a noncash expense, which allows Salesforce to be free cash flow positive. In Q2, Salesforce produced $131 million in free cash flow, adding to its $13.5 billion cash and marketable securities position. With its cash pile, Salesforce plans to repurchase $10 billion in stock.
At face value, this may indicate that management believes its stock is undervalued. However, the primary reason for this repurchase plan is to offset shareholder dilution. Because of heavy stock-based compensation, Salesforce's share count has risen 38% over the past five years. This dilution makes each share less valuable, since each stock is worth a smaller stake in the company when new shares are issued.
If Salesforce were to drop all $10 billion on its shares right now, it would reduce its outstanding shares to a level last seen in 2021 before the acquisition of Slack was completed. That doesn't rewind the clock on share count much, but it would be a start.
As for a valuation, Salesforce trades at 5.7 times sales, which is low compared to other enterprise software companies like Adobe (11.3) and Autodesk (10), even though it used to trade in a range similar to its peers'.
However, Salesforce isn't close to the profitability levels of these two, which weighs into its valuation.
I'm on the fence about declaring Salesforce undervalued. While it operates in a massive and growing industry, its dominance has brought it to the point where it will likely grow at a similar rate to the overall market. As Salesforce flips the switch from growth at all costs to profitability, it may struggle with its high stock-based compensation bill.
I think this pessimism is reflected in its below-industry-average valuation. As a result, I think Salesforce shares are likely reasonably valued.
However, this doesn't mean you shouldn't buy the stock. As Warren Buffett once said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Salesforce is a wonderful company; it just has a lot to prove before joining the ranks of highly profitable businesses.
Keithen Drury has positions in Adobe Inc. and Autodesk. The Motley Fool has positions in and recommends Adobe Inc., Autodesk, and Salesforce, Inc. The Motley Fool recommends SAP SE and recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.
Success in today’s business climate hinges on building a strong and vibrant ecosystem. Salesforce recognized this early on and was one of the first in the cloud computing space to dream up a business model built on partnership. Matt Meyers has been in the tech field for over 20 years and is one of the top experts within the Salesforce ecosystem. As a senior consultant, Matt knows his way around any facet of the Salesforce platform you could imagine. Matt is also an entrepreneur and CEO and co-founder of Adaptus, maker of EzProtect, a Software-as-a-Service virus scanning cyber security platform for Salesforce. He holds a Bachelor of Science in Computer Science and an MBA from Texas Tech University. Matt’s success in the Salesforce ecosystem has been driven by his expertise, determination, and extensive experience with complex implementations.
Matt has always been intrigued by both technology and business. In fact, he believes that’s why he became so interested in Salesforce because it seemed like the perfect culmination of business and technology. Matt began his career as a Salesforce developer and quickly tried to grasp anything he could to learn as much as he could about the company. He realized early on that knowledge was the key to growing his career to where he wanted to go and living the lifestyle he always wanted. As a result, Matt aggressively went for his first few certifications and then realized he couldn’t grow anymore in his current position. He moved on to join a global consulting company, HCL, where he began his career as a Salesforce consultant.
Consulting gave Matt more power than software development had. He quickly discovered he enjoyed consulting because it allowed him to help people solve complex problems, but for some reason, he was still unfulfilled. Matt yearned for more and desired to work at the company that fueled his passion, Salesforce. In the next few months, Matt spent countless long hours studying and earned various Salesforce certifications until he had just about every certification offered at the time. It was then that he met someone who was a sales executive at Salesforce who connected him with a recruiter, which led to him being successfully hired. Matt started as a customer-facing architect in Salesforce services, helping some of the company’s largest customers implement Salesforce.
The role exposed Matt to more aspects of the business and constantly challenged him, inspiring him to become better at his job. His desire to excel pushed him, and he eventually decided to tackle Salesforce’s highest certification, the Certified Technical Architect credential. Matt says this was the most challenging yet rewarding journey of his career, and it took him over two years to complete. A Certified Technical Architect is pretty much the Ph.D. of Salesforce as of now, and only about 400 people hold this certification worldwide within the ecosystem. After dedicating his entire life and career to Salesforce, Matt’s efforts were finally paying off, and bigger doors were opening.
Over the next few years, he worked his way up until he reached the director level and led all of Salesforce’s program architects in the public sector. After some time in this role, Matt decided he wanted to be more independent and started to think about running his own company. He left Salesforce, made a relationship with a major Salesforce consulting firm, and partnered with someone else to grow his company. A true and respected expert in his field, Matt took up mentoring and training, which he continues to do on his social media profiles. His mission is to empower aspiring architects and help them shorten their learning curve.
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The ultimate goal of pulling customer data together into a customer data platform (CDP) is building more meaningful customer experiences in real time. Up until now, that’s been more aspirational than real, but Salesforce is announcing Genie, a real-time data integration platform, today at the Dreamforce customer conference, which aims to make that dream a reality.
At its core, Genie is a new data integration model that underlies the entire Salesforce platform with the aim of moving data wherever it’s needed most — and doing it fast.
Patrick Stokes, EVP and GM of platform at Salesforce, says this is probably the biggest news coming out of Dreamforce this week. “Genie effectively enables the world’s first real-time CRM,” he said.
“So we’re announcing that our Customer 360 applications — sales, service, commerce, marketing, everything in our Customer 360 portfolio — now have access to an entirely new way of bringing data into Salesforce in real time at scale that we’ve never been able to achieve before. And with that, our users can orchestrate real-time customer experiences against those datasets,” Stokes explained.
Prior to this, the company had built data integrations based on the transactional data in the Salesforce CRM database. This goes back to 2007 when Salesforce announced plans for Force.com at that year’s Dreamforce. Stokes said Genie is the modern equivalent of that early attempt, using a data lake that the company built to store the data instead of a transactional database.
“We connected this lakehouse architecture to the Salesforce platform, which at the technical layer means literally, we taught it Salesforce metadata, which is the way that all of our services talk to each other.” This approach also allows the platform to work with external services and data repositories, as well. In fact, the Snowflake integration the company announced last week is built with this technology.
But Genie is more than just a data integration layer. By allowing data to flow faster and more freely, it opens up all kinds of automation possibilities, especially when you combine it with Einstein for AI and machine learning and Salesforce Flow, the company’s workflow tool.
“If your platform can suddenly talk to all of this new data, and that data is coming in in real time, then you can use our automation layer like Salesforce Flow to orchestrate workflows or automations in real time, but only if the platform can keep up with the speed of change and volume of data that’s coming in,” he said.
Part of the ability to go faster beyond the architectural changes at the software level is that Genie is running on Salesforce’s own cloud infrastructure, Hyperforce, which was announced in 2020 as a way to move data from Salesforce to the public cloud. In this case, they are using it to move data between Salesforce and other services, both on the platform and to other data sources like Snowflake or Amazon SageMaker.
He adds that this ability to move data around in real time (or near real time), creates what is essentially a customer data graph.
“When you connect all of these different data sources into Genie, be those directly or other data lakes like Snowflake, what you’re doing is you’re modeling the data. You’re basically hooking it up to a data model. And when you do that, you’re creating a graph of how all that data is related to each other, independent of where it lives in a particular system of record, which is incredibly powerful,” Stokes said.
Liz Miller, an analyst at Constellation Research, says the shift to a new data model is a much-needed move for the company by pushing the CDP beyond marketing
“Honestly the thing I find most important about this is that Salesforce is moving in the right direction with their vision of a customer data platform. They are not treating a CDP as if it is a marketing toy for marketing things. Instead, they are turning the CDP into a foundational layer of unified, normalized and persistent personalization and smart segmentation that benefits the entire customer experience front line across sales, service and marketing,” Miller told TechCrunch.
Sheryl Kingstone, an analyst at S&P Global Market Intelligence, who has been covering the CRM space for years, agrees, saying the key to this change is building the data mechanism in a way that you can share this valuable data more widely.
“They are really focused on building this as part of what I would say is a true platform with all of the assets that this needs to work, and hopefully, it will create what I call a ‘customer intelligence platform,’ which makes sure that you don’t have multiple different CDP silos. And we finally can have that single source of the truth and execute on it.”
The combination of tooling has the potential to be able to make things happen based on the data and the situation without requiring human intervention, and that can be powerful. But Kingstone says the human side still matters and companies have to learn to put data in the hands of the people on the ground working with customers.
That’s going to be a huge challenge, regardless of how sophisticated the technology is, but Salesforce is attempting something big here that’s never been done before by changing the way data moves around the platform. Whether that truly leads to better customer experiences, online and in person, however, remains an open question.
Unlike many Dreamforce announcements, customers don’t have to wait until next year for Genie. These new capabilities are available now.
Insiders seem to have made the most of their holdings by selling US$106m worth of Salesforce, Inc. (NYSE:CRM) stock at an average sell price of US$173 during the past year. The company’s market cap plunged by US$10b after price dropped by 6.4% last week but insiders were able to limit their loss to an extent.
While insider transactions are not the most important thing when it comes to long-term investing, we would consider it foolish to ignore insider transactions altogether.
See our latest analysis for Salesforce
In the last twelve months, the biggest single sale by an insider was when the Co-Founder, Marc Benioff, sold US$53m worth of shares at a price of US$182 per share. While we don't usually like to see insider selling, it's more concerning if the sales take place at a lower price. The good news is that this large sale was at well above current price of US$145. So it may not shed much light on insider confidence at current levels.
Salesforce insiders didn't buy any shares over the last year. The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
I will like Salesforce better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
For a common shareholder, it is worth checking how many shares are held by company insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. It's great to see that Salesforce insiders own 3.1% of the company, worth about US$4.6b. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
It doesn't really mean much that no insider has traded Salesforce shares in the last quarter. It's great to see high levels of insider ownership, but looking back over the last year, we don't gain confidence from the Salesforce insiders selling. While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. While conducting our analysis, we found that Salesforce has 3 warning signs and it would be unwise to ignore them.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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