Company Overview: Salesforce.com, Inc. (NYSE: CRM) is a global leader in customer relationship management (CRM) technology, bridging gaps between companies and customers. Its customer 360 platform connects customer data across systems, apps, and devices to provide a single source of truth, allowing businesses to sell, service, and conduct business anywhere. It also offers solutions including Service Cloud for customer care, Marketing Cloud for digital marketing campaigns, Commerce Cloud for e-commerce, and MuleSoft for data integration.

CRM Details

Key Takeaways from FY22 (ended January 31, 2022)

• Growth in Revenues: The company's total revenues in FY22 (ended January 31, 2022) were USD 26.49 billion, a 24.66% rise from USD 21.25 billion in FY21.
• Boost in Income from Operations: The company reported an increase in operating income to USD 548 million in FY22 from USD 455 million in FY21.
• Improvement in Headcount: CRM's full-time equivalent headcount increased by 5.77% to 73,541 as of January 31, 2022, up from 69,530 as of October 31, 2021, owing to the acquisition of Slack.

Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• MuleSoft, a CRM platform, announced a partnership with Holiday Inn Club Vacations Incorporated, a tour and travel provider, on February 07, 2022, to establish a single vacation booking system that delivers digital experiences for the company's members.
• CRM launched Safety Cloud on February 01, 2022, which will assist businesses and communities in better managing testing, health, and entry protocols to offer safer in-person experiences at events and in the workplace.
• On January 26, 2022, CRM stated that it had issued equity awards to new workers who joined the company due to the acquisition of Narrative Science under its 2014 Inducement Equity Incentive Plan. It has given 55 Narrative Science workers a total of 53,846 restricted stock units (RSUs). The RSUs vest over four years, with 25% vesting on the first anniversary of the grant date and the remaining RSUs vesting quarterly in 12 equal increments after that.
  

Segment Wise Results FY22

• Subscription & Support – This segment accounted for 93.07% of the total revenues in FY22, reported YoY growth of 23.43% to USD 24.66 billion, from USD 19.98 billion in FY21.
• Professional Services and Other – This segment accounted for 6.93% of the total revenues in FY22, growing 43.81% YoY to USD 1.84 billion from USD 1.28 billion in FY21.

Balance Sheet & Liquidity Position

• Slight Fall in Cash Balance: As of January 31, 2022, the company reported a cash balance (including marketing securities) of USD 10.54 billion, down 11.94% from USD 11.97 billion as of January 31, 2021.
• Raise in Cashflow from Operations: CRM reported an increase in net operating cash inflow in FY22 to USD 6.00 billion from USD 4.80 billion in FY21.
• Progress in Investing Activity: Net cash used in investing activities climbed to USD 14.54 billion for the fiscal year ended January 31, 2022, up from USD 3.97 billion for the fiscal year ended January 31, 2021. This adjustment was caused due to business acquisitions and strategic investments.

Key Metrics: CRM's EBITDA and net margins in FY22 were 14.5% and 5.5%, up from the industry medians of 7.7% and -5.6%, respectively. The company operates at a debt/equity ratio of 0.18x as of FY22 compared to the industry norm of 0.26x.

Profitability and Leverage Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 35.91% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and Fidelity Management & Research Company LLC, hold the maximum stake in the company at 7.73% and 6.66%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Dependence on Third Parties: Customers in the United States and other countries are currently served via third-party data centre hosting facilities and cloud computing platform providers. It also uses computer gear purchased or leased from third parties and software licenced from third parties to perform its services. Any disruption or damage to, or failure of, the company's systems in general, including those of its third-party platform providers, might result in service disruptions, affecting revenues and cash flows.
• Currency Fluctuation Risk: CRM is operated in several global marketplaces, including the Americas, Europe, and the Asia Pacific, with most of its transactions taking place in foreign currencies. Due to doing business and investing in other currencies, it is exposed to foreign currency risk.
• Product Concentration Risk: CRM corporate cloud computing application subscriptions account for a significant portion of the company's revenue, which the company plans to sustain for the foreseeable future. Its business could be jeopardised if it cannot offer new features for existing or new services that keep up with rapid technological advancements.

Outlook

• Looking ahead, CRM expects revenues to be between USD 7.37 and 7.38 billion in Q1FY23, up ~24% YoY. GAAP earnings (loss) per share (EPS) is expected to be in the range of USD (0.05) to (0.04), while non-GAAP EPS is expected to be in the range of USD 0.93 – 0.94.
• Revenues for FY23 are expected to be in the USD 32.00 – 32.10 billion range, representing a ~21% growth YoY. It anticipates operating margin to be around 3.6% and 20% on the GAAP and Non-GAAP basis, respectively. It also projects FY23 GAAP EPS to be in the range of USD 0.46 – 0.48.
• In FY23, the company expects operating cash flow to expand at a rate of ~21 to 22% YoY.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock has fallen 24.05% in the past six months. The stock is currently leaning towards the lower band of its 52-week range of USD 184.44 to USD 311.75. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). Given its market dominance in the application software industry, high-profit margins, and global market presence, we believe CRM can trade at a premium to its peers' average. We have taken peers like Adobe, Inc. (NASDAQ: ADBE), SAP SE (NYSE: SAP), and others. Considering the robust top-line performance, strong cash flows, new collaborations, optimistic outlook, improvement in headcount, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 203.90, down 2.39%, as of March 02, 2022, at 10:40 AM ET. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CRM Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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