Platform-App-Builder information source - Salesforce Certified Platform App Builder Updated: 2024

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

By Brian Nelson, CFA

Stock prices and returns are in part a function of the cash-based sources of intrinsic value: net cash on the balance sheet and future expectations of free cash flow. All else equal, a company with more net cash on the books is worth more than a company with a significant amount of net debt. Similarly, the stronger and more predictable a company's future expected free cash flow stream, the higher the valuation multiple it should be assigned by the market. As free cash flow expectations rise, so should the stock price, all else equal. If free cash flow expectations fall, the stock price should fall, too, all else equal.

In this article, we would like to update readers on our new fair value estimate of Salesforce (NYSE:CRM), explain key changes within our valuation model, as well as walk through its most latest quarterly results. Back in November 2022, we wrote in this article that we thought investors should be cautious on Salesforce's shares. Our $163 per share fair value estimate at the time was only modestly higher than where shares of Salesforce were currently trading, and we're finding that our fair value estimate has largely tracked its share price through this update. Let's now get into the details.

Latest Earnings Report

Salesforce issued strong fiscal third-quarter results on November 29 and provided an outlook for its fiscal fourth quarter that came in better than what consensus had been expecting. The firm's performance was quite welcome in this uncertain economy as the bellwether showcased that spending on cloud-based CRM software continues to be robust. Revenue advanced 11% from last year's quarter, while non-GAAP diluted earnings per share was a solid $2.11. Salesforce's outlook was rosier than what the Street had been expecting. The Dow Jones Industrial Average component is targeting non-GAAP earnings per share in the range of $2.25-$2.26 per share for the fiscal fourth quarter, better than the consensus forecast of $2.18. Salesforce's strong quarterly report only increases our confidence in Salesforce’s longer-term outlook.

Here is what CEO Marc Benioff had to say about the quarter in the press release:

We had another strong quarter of executing on our profitable growth plan we set in motion last year, delivering $8.7 billion in revenue and again raising our operating margin guidance for this fiscal year. We're now the third largest enterprise software company by revenue, the number one AI CRM and the number one enterprise apps company. Most importantly, we're bringing CRM, data, AI and trust together in a single, integrated platform, leading our customers into a new era of incredible productivity and growth."

We think the growth runway at Salesforce continues to be a long one. Its total addressable market is targeted at $290 billion by calendar 2026 and is growing at a nice 13% compound annual growth rate. The company’s land-and-expand strategy generates incremental revenue across its existing customer base, while geographic expansion and multi-cloud adoption is helping performance. The company is targeting as much as $50 billion in revenue by fiscal 2026, up from expected fiscal 2024 revenue of $34.75-$34.8 billion, and as it scales its business, the firm’s operating margin should continue to expand. Salesforce ended the quarter with ~$11.9 billion in total cash and marketable securities and ~$9.4 billion in short- and long-term debt--good for a nice net cash position. For the first nine months of its fiscal year, free cash flow totaled $6.2 billion, up from $3.7 billion in the same period last year.

Updated Valuation Statistics

Since our last update, we've finetuned our revenue growth forecasts and they remain in the low double-digit range. Now, we expect a 12.1% compound annual revenue growth rate over the next five years versus 14.4% previously. We, however, significantly raised our operating margin [EBIT] assumptions, and we're now forecasting the company achieves a non-GAAP 32.3% average operating margin over the next five years, significantly higher than our prior assumption, accounting for a large part of the delta in the fair value estimate revision. We think Salesforce is scaling its business well, and latest commentary from CEO Marc Benioff indicates that the firm continues to experience solid operating leverage, something innate to its scalable business model. Salesforce has outperformed our expectations since our last update, and our current fair value estimate now stands at $255 per share (was $163 per share).

Margin of Safety

Integral to a discounted cash flow [DCF] process is the application of a margin of safety, as the fair value estimate is sensitive to many assumptions, not the least of which are mid-cycle revenue and mid-cycle operating margin assumptions. We like to use a fair value estimate range in our process, addressing the pitfall that is precision when dealing with the DCF valuation model tool. Said another way, if one has a stock that one thinks is worth $100 per share, it may be more appropriate to say that the stock is worth, let's say, somewhere between $80 and $100. In this context, we think Salesforce's fair value range is $204-$306, a wide range that takes into consideration not only potential variation in future revenue growth but also its mid-cycle operating margin, both to the upside and to the downside. Our fair value estimate of $255 should only be viewed as the most probable fair value in the distribution below.

Concluding Thoughts

In this article, we wanted to reiterate how we think Salesforce has a huge addressable market opportunity, as it scales its business to higher adjusted operating margins. It is now clear that we were way to cautious in our prior November 2022 article, and today, we view Salesforce's shares as about fairly valued, given the material fair value increase since our last update on Seeking Alpha. For more aggressive investors, the high end of our fair value estimate range, north of $300 per share, may be a good target for shares, while more conservative value investors may only seek shares at more attractive levels, below the low end of the fair value estimate range. The problem, of course, with great companies such as Salesforce is that they often don't even reach bargain-basement prices that often.

SAN FRANCISCO, Dec. 14, 2023 — Salesforce today announced significant updates to its Einstein 1 Platform, adding the Data Cloud Vector Database and Einstein Copilot Search.

Accurate and relevant generative AI prompts require grounding in the most comprehensive set of enterprise data. Until now, this has required expensive and labor-intensive model fine-tuning. Data Cloud Vector Database will solve this challenge by making it quick and easy to bring unified business data into any AI prompt so customers can deploy trusted, relevant generative AI across all Salesforce applications without having to fine-tune an off-the-shelf large language model (LLM).

Data Cloud Vector Database – built into the Einstein 1 Platform – enables AI, automation, and analytics for improved decision-making and customer insights across all Salesforce CRM applications. Data Cloud will also power Einstein Copilot Search — announced today — enhancing Einstein Copilot, Salesforce’s generative AI assistant, with AI search capabilities that use all business data to deliver more precise information, conveniently in the flow of work.

New capabilities:

• Data Cloud Vector Database
  • Data Cloud Vector Database will remove the need to fine-tune LLMs by seamlessly using all business data to enrich AI prompts, allowing customers to use a variety of data types across their business applications and workflows. This increases business value and ROI by unifying unstructured data, including PDFs, emails, documents, and transcripts, with structured data, including purchase history, customer support cases, and product inventory, to power AI, automation, and analytics across every Salesforce application.
  • For example, customer service leaders will enhance efficiency and customer satisfaction by utilizing a platform that proactively presents relevant knowledge articles to service agents the moment a case is created. This allows for quick identification of similar cases and the integration of automation, thereby reducing case resolution time and improving the overall customer experience.
• Einstein Copilot Search
  • Einstein Copilot, available in February, will include enhanced AI search capabilities that interpret and respond to complex queries from users by tapping into diverse data sources, including unstructured data. Einstein Copilot Search will enhance Einstein Copilot, providing sales, customer service, marketing, commerce, and IT teams with an AI assistant capable of solving problems and generating content by accessing real-time unstructured and structured business data. Customers will benefit from an AI assistant that understands and addresses complex queries by accessing insights and knowledge previously unattainable with foundational LLMs due to limitations in their training data. Einstein Copilot Search also provides citations to source material. Salesforce’s Einstein Trust Layer builds trust and confidence in AI-generated content while maintaining data governance and security.
  • For example, in customer service, Einstein Copilot Search will link a customer’s concerns from unstructured emails and phone call transcripts to their structured support ticket history. This provides service representatives with a detailed understanding of customer issues and their historical context and AI-generated, data-backed resolution suggestions. And, the new integration of source citations enhance the customer service team’s confidence in the AI-generated insights.

Data is crucial for delivering accurate, compelling customer experiences and driving AI innovation. However, 90% of enterprise data exists in unstructured formats like PDFs, emails, social media posts, and audio files, making it largely inaccessible for business applications and AI models. Forrester predicts that the volume of unstructured data managed by enterprises will double by 2024, highlighting the urgency of this challenge. While 80% of IT leaders acknowledge the transformative potential of generative AI in leveraging data more effectively, 59% still need a unified data strategy to harness this power.

“This advancement in Data Cloud, coupled with the power of LLMs, is a game-changer, fostering a data-driven ecosystem where AI, CRM, automation, Einstein Copilot, and analytics turn data into actionable intelligence and drive innovation,” said  Rahul Auradkar, EVP and GM of Unified Data Services & Einstein.

Learn more about the Einstein 1 Platform.

Availability:

• Data Cloud Vector Database will be in pilot in February 2024.
• Einstein Copilot Search will be in pilot in February 2024.
• Einstein Copilot will be generally available in February 2024.

About Salesforce

Salesforce empowers companies of every size and industry to connect with their customers through the power of data + AI + CRM + trust. For more information about Salesforce (NYSE: CRM), visit: www.salesforce.com.

Source: Salesforce

Salesforce recently added another lot of AI functionality to its Einstein 1 Platform. Among other things, vector databases are now better supported. In addition, the capabilities of the generative AI assistant Einstein Copilot have also been expanded.

With all the new AI-enabled functionality Salesforce is now bringing to its renamed Einstein 1 Platform, teams of users will soon be able to plug AI into their workflows more efficiently.

In this regard, it does not matter whether they build their AI-based application for the Salesforce platform or use the generative Einstein Copilot assistant to retrieve required data for their (development) projects.

For this, the new functionality should combine the elements from Salesforce Data Cloud and Einstein Copilot to the various CRM applications and Einstein Copilot Studio for building AI-based applications.

Enhanced vector database support

New features include enhanced support for vector databases in Salesforce Data Cloud. This now converts unstructured data into a workable vector format. This data is combined with structured information that should make generative AI tooling and analytics available in workflows for various Salesforce CRM solutions.

This, in turn, should also provide better insights and analytics via prompts.

Ultimately, this vector database support makes it easier for developers to use their combined unstructured and structured data to train various LLMs. The company promises that fine-tuning of these models will be unnecessary from now on.

Update Einstein AI Copilot

The update for the generative Einstein AI Copilot assistant also offers this enhanced vector database functionality. This technology is intended to support the new AI feature Einstein Copilot Search in the generative assistant.

Einstein Copilot Search helps users query all unstructured and structured business data. The exact results of these search queries are then brought up directly in users’ various workflows.

Finally, links are provided to the underlying source material so users can be confident that the data on which the answers are based is reliable.

Availability

The generative AI assistant Einstein AI Copilot will not become generally available until February 2024, according to Salesforce. At the same time, the company will also test vector database support and enhanced AI Search.

Also read: Salesforce needs AI from AWS to strengthen its offerings

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Salesforce has announced that it is loosening its non-disclosure agreements, allowing all its employees to share information about on-the-job harassment and discrimination. For the CRM software leader, which in the past took action to eliminate unwarranted gender-based pay differences, this policy change marks a new milestone toward a more transparent workplace culture.

But for companies that have felt ambivalent about giving their employees a louder voice, the ongoing shift toward transparency raises questions about risk and preparedness. On the one hand, it could lead down the path to a healthier and more ethical culture. On the other, it could result in hefty reputational costs.

Public Scrutiny May Help Expose, But Not Prevent Unethical Conduct

The logic of putting a tight lid on unruly workplace behavior and expecting silence from employees underscores a preference for managing consequences rather than root causes. Building an ethical culture is a demanding endeavor, especially as the scale of the business increases and the challenges become more complex. Pressured to grow, innovate, control costs and return value to shareholders, organizations may ignore the question of whether their “ways of doing things” create ethical risk. Instead, they may turn their attention to limiting the fallout of bad conduct. In this process, employee silence can become a premier resource to stop unethical behavior from translating into a loss of reputational capital.

Yet, now that legislation like the Silenced No More Act is redefining the boundaries of corporate confidentiality, solely focusing on the consequences of unethical conduct is not enough. Since employees are increasingly willing to share their grievances on social media or via other outlets as anonymous sources, the risk of exposure can only grow. Furthermore, the public is sympathetic to these forms of denunciation.

What should concern businesses is that while the current push for transparency creates reputational risk, it doesn’t necessarily curb unethical conduct. Without committing to more consequential changes, pledging or submitting to provisions that deliver victims a voice is not enough to eradicate harassment and discrimination from the workplace. Take, for example, recent research on the effects of public scrutiny on honesty. While people may cheat less in public than in private, the choice to act more ethically when scrutinized may depend on whether one also expects others to do the right thing.

Moreover, since harassment and discrimination are often rooted in systemic cultural issues, scrutiny alone is unlikely to correct them. As shown by the firing of Francoise Brougher and the decision to quit by other minority employees at Pinterest, gender and racial stereotypes are difficult to control. Even in the case of a business with a primarily female user base and a brand encouraging curiosity and diversity, the corporate culture may still enable an oblivious attitude toward bias.

Conduct risk may remain uncurbed despite higher scrutiny for two other reasons. First, while the public may hold companies accountable, companies may not do the same with perpetrators. Driven by the logic of mitigating “reputational damage,” organizations may lack appropriate accountability mechanisms or look for scapegoats to protect senior leaders and top performers.

Second, in addition to losing the payout of their employment, those who speak up often bear other negative consequences. While the Silenced No More Act provides new protections, it does not shield victims from the prevailing corporate mindset: that avoiding trouble is more desirable than hiring candidates who dared to blow the whistle. Risking long-term costs to their employability, targets of harassment or discrimination may not report what they experience in the workplace—an outcome that’s likely to embolden perpetrators.

Re-engineering The Old Culture Of Employee Silence

If, on the one hand, the increasing reputational hazard that companies face today forebodes a slew of corporate scandals, it may become the driver of a different type of corporate culture. For the latter to be true, organizations must do two things: (1) start addressing the root causes of the ethical challenges that weaken them; (2) replace silence with control mechanisms that correct the sources of the risk.

Using Legal Requirements To Strengthen The Organization’s Ethical Core. How organizations respond to changes in regulations and societal norms matters. While Google and Apple merely took formal steps to adhere to the new legislation, Salesforce's public commitment stood out. In conveying its intentions, Salesforce clarified that "…employees are key stakeholders, and it's critical … they're happy, healthy and protected." This language is consistent with the company’s vision statement, which underscores that “…the business of business is to Improve the state of the world… serving the interests of all our stakeholders…"

Essentially, Salesforce made sure to align its policy shift with what it values, laying out its priorities in no uncertain terms. Since the culture at Salesforce centers around a strong community spirit (i.e., “Ohana”), the fact that the San Francisco-based company took a transparent stand shows foresight in yet another way. As it weaves a tight-knit culture, a principle like “Ohana” also engenders deep loyalty, a key obstacle to holding fellow organizational members accountable.

Identifying And Correcting Cultural Risk. An organization transitioning into greater transparency without understanding the cultural risks it faces is like a blindfolded person stepping onto a minefield. The question is not whether employees are happy or satisfied, but whether mindsets and behaviors that enable harassment or discrimination exist. Companies that catch up to the requirements of transparency must understand their blind spots, starting with those cultural beliefs that empower prevaricating or discriminatory conduct. Once a profile of such beliefs exists, the work of correcting them must begin.

This endeavor goes far beyond training employees to impart basic knowledge of ethical behavior and implicit bias. Instead, figuring out how beliefs interact with current systems and correcting both is far more critical. Take, for example, the fact that most organizations brand their local HR people as HR business partners. A seemingly innocuous label, this title has the disadvantage of prioritizing the job of HR as, first and foremost, supporting the needs of the business. Yet, once such a belief is internalized, it can become difficult for the HR team to address instances of workplace harassment or discrimination impartially.

Fostering Employee Voice. It may seem obvious, but adapting to increased public scrutiny must also entail a culture where employees have a voice. By using silence to manage reputational damage, not only have organizations hushed victims, but they've also created a silent majority. Thus, in the traditional corporate culture, employees are first primed to think about the risks their voice poses to their employment or career advancement and then about the ethical standards they share. While this attitude has ensured less “trouble,” it's also suppressed the uniquely beneficial effects of social norms—a powerful informal mechanism for regulating conduct.

Notably, even though employees are increasingly comfortable with making themselves heard on social media, that alone should not be taken as a sign of a culture fostering employee voice. First, those who are more outspoken often move on, leaving the silent majority behind. Second, antagonistic episodes of public denunciation won’t prevent problems early on. Nor do they help build a workplace where both companies and employees can thrive and share their willingness to find solutions to common issues.

Only when organizations start rerouting employee voice into forums that offer psychological safety and opportunities for multilateral reflection can they claim to be fostering a culture of voice. For this evolution to occur, they must do more than address their “sacred cows” (i.e., the issues they struggle to talk about). They must also correct the pluralistic ignorance that desensitizes them, including the misconceptions that few care about ethical standards and most condone certain forms of unethical conduct.