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The deal is the latest acquisition by an agency holding company for an e-commerce company or SalesForce specialist, following similar buys in exact months by WPP, Media.Monks, Dept, Dentsu and Havas Group.

With marketing spending on e-commerce rapidly increasing, agencies have been keen to Improve their service offerings. RafterOne’s clients already include Skechers, Kind Snacks and The Company Store, supplying marketing commerce, CRM, cloud and data services. The firm employs around 500 staff and is based in Portsmouth, New Hampshire.

Philippe Krakowsky, chief executive officer of IPG, said: “Our clients are looking for partners that help them adapt strategies and find new ways to interact with customers across physical and digital environments.

“Salesforce has become a priority platform for marketers to thrive in the digital economy, and RafterOne delivers highly-personalized content that engages and converts in a measurable, precise and repeatable way.”

RafterOne will be ‘aligned’ with commerce agency MRM, an IPG spokesperson said, adding that “the combined offering will power Salesforce platform solutions across the holding company network and allow RafterOne to collaborate with the world’s top marketers to drive growth and scale through connected commerce.”

Media, data and ‘engagement solutions,’ IPG’s term for the services provided by subsidiaries such as MRM, accounted for well over a third of its revenue in the first half of 2022, and the company cited a Euromonitor study, which estimates the market for e-commerce will be worth trillions of dollars by 2026.

Kate MacNevin, global chairwoman and chief executive officer of MRM, said: “RafterOne brings an incredibly talented and specialized team into the IPG network, allowing us to deliver creative that works smarter for our clients and delivers against our promise to build meaningful relationships through innovation.

“This team has reimagined how we connect with audiences and ultimately deliver for clients. In combination with the work we do across our network, this positions us to drive industry-leading innovation.”

“While limited hiring continues, most departments have reached their hiring goals for the fiscal year,” a Salesforce spokesperson told SFGATE. 

During an especially tumultuous time for the tech industry, Salesforce appeared to be a rare anomaly: a tech giant continuing to thrive amid headwinds. Salesforce’s total revenue for fiscal year 2022 was $26.5 billion, a 25% year-over-year increase.

The company recently took over San Francisco with its latest iteration of Dreamforce, the company’s first in-person event since the COVID-19 pandemic. More than 40,000 people were in attendance. Still, during the conference, co-CEO Marc Benioff alluded to the idea of “some level of normalization” after the pandemic period of mass growth for Salesforce and other tech companies. 

“Everything is still bigger, but there is definitely some overage that has to be dealt with,” he said in a press conference during the event. “I don’t think anyone will disagree with that.”

In addition to the layoffs, Protocol reports, Salesforce is enacting a hiring freeze through January 2023. The move is small but significant; large tech companies, on the whole, have been reluctant to conduct layoffs even as startups and other fledgling companies are shedding employees. 

The Salesforce representative did not provide details about what severance benefits affected workers will receive.

Hear of anything going on at a Bay Area tech company? Contact Joshua Bote securely on Signal at 707-742-3756.

The Microsoft Dynamics 365 product suite contains a comprehensive set of tools built to perform practically every aspect of business management. Based on Microsoft Azure, a cloud-computing ecosystem―although an on-premise solution is also available, if preferred―Dynamics 365 features 11 core “modules,” which cover everything from sales, customer service, automation and marketing to talent management, finance and operation, retail and AI. What sets Microsoft Dynamics 365 apart from the competition is the full integration with Microsoft’s extensive list of software including the classics we all know and love, like OneDrive, Excel and Outlook.

Microsoft Dynamics 365 offers three main sales plans and two main customer service plans designed to cover a wide variety of business needs. On top of that, Microsoft Dynamics 365 has a whole host of add-ons for businesses with specific needs. Most of Microsoft Dynamics 365 plans are discounted to $20 per user, per month, if the user already has one Dynamics 365 product.

The Microsoft Dynamics 365 product tiers start with the Sales Professional at $65 per user, per month, billed annually. The Professional plan offers an extensive suite of sales executing services, full reporting and analysis with exports to Excel and some amount of customization.

The Sales Enterprise, at $95 per user, per month, adds knowledge management and gamification as well as a limited amount of contextual insights and AI.

The Sales Premium plan, at $135 per user, per month, offers the full package when it comes to sales acceleration, fully customizable solutions and more in-depth contextual insights and conversational intelligence.

For the customer service side of your business, Microsoft Dynamics 365 offers a Professional plan at $50 per user, per month, which includes an unlimited number of named users, extensive case and knowledge management and includes service for mobile.

The Customer Service Enterprise plan, at $95 per user/per month adds more advanced capabilities like a unified service desk, embedded AI intelligence which gives context-driven suggestions and analytical reports.

All the Microsoft Dynamics 365 sales and customer service products are fully integrated with all Microsoft products, such as Outlook, Excel, OneNote and more:

• Sales Professional:$65 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers core sales force automation and Microsoft 365 automation
• Sales Enterprise:$95 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers industry-leading sales force automation with contextual insights and advanced customization options
• Sales Premium:$135 per user, per month, billed annually, adds prebuilt, customizable intelligence solutions designed for your businesses sellers and managers
• Customer Service Professional:$50 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers core customer service capabilities
• Customer Service Enterprise:$95 per user, per month, for a first-time user or $20 per user, per month, if the user already has Dynamics 365 products, billed annually, offers more advanced customer service capabilities

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 -2.21%).

What does Salesforce do?

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?

Strong present results, but a slower future is in store

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'.

CRM PS Ratio data by YCharts

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.

 

RafterOne has 500 staffers across five offices in the U.S., Canada and India.

 

RafterOne will operate as a standalone entity under IPG. Cofounder Dodier told Campaign US it wouldn’t make sense to merge RafterOne with another IPG agency because of its specialist focus. “If we can stay in our lane and focus on Salesforce, there's plenty of room for growth,” he said.

 

“At this point, there's no timeline on RafterOne going away, if ever,” Dodier added. He expects to integrate some back office functions with IPG eventually.

 

The company will closely partner IPG’s digital marketing agency MRM, which it already shares an undisclosed client with. MRM will offer RafterOne access to new clients in verticals such as auto and life sciences, as well as access to a broad set of capabilities in data, marketing, branding and optimisation, Dodier said. RafterOne’s biggest clients are in retail, manufacturing and high-tech. 

 

For IPG, RafterOne is a strategic bet for several reasons. The company will enhance IPG’s integrated commerce offering, grow its martech capabilities and provide another avenue to monetise data business Acxiom. 

 

“On our earnings calls we often get asked about the overarching, broader approach to M&A and we've been pretty consistent that commerce is an area that we're interested in,” IPG CEO Philippe Krakowsky told Campaign US in an interview.

 

“We see few client engagements where e-commerce is not part of the brief. So clearly, we need to ensure that we have the wherewithal to incorporate it into our overall offering and to solve for it, because it's an area where clients are very focused.”

 

IPG is less acquisitive than some of its agency network peers, preferring to grow organically. When weighing up what capabilities to build, partner with or acquire, Krakowsky said he considers whether something is “core and central” to marketers’ digital transformation plans. 

 

He believes Salesforce is core enough to warrant investment. Its tools form the foundation of many brand’s commerce operations, allowing them to manage everything from online sales to customer service to marketing. Meanwhile, e-commerce has boomed since the COVID pandemic, rising from 15% of global retail sales in 2019 to 22% this year, according to Morgan Stanley. It is expected to grow from a $3.3 trillion industry to $5.4 trillion by 2026.

 

“You have to have broad expertise across so many technologies and platforms, but among the primary ones you want to ensure that you've got the absolute best-in-class capabilities,” he said. “We're constantly reassessing whether something is becoming strategic and core enough that we feel it needs to be part of the offer, or whether it is something where we'll continue to be comfortable and successful just finding partners.”

 

Kate MacNevin, MRM chairwoman and CEO, said: “We’ve seen a huge surge in market demand around platforms like Salesforce because it brings the entire customer journey together on one platform.” 

 

“Deep commerce capabilities and platform expertise have become core to how we build and engage audiences for our clients,” she added.

 

Both Krakowsky and Dodier see opportunity in using Acxiom’s data to power RafterOne’s solutions. Acxiom, which IPG acquired for $2.3 billion in 2018, was the holding company’s costliest bet, and it continues to look for ways to weave the data layer into its solutions.