Salesforce: Making Cloud Computing a Norm
March 9 2022 - Team Stockal
In a world of cutthroat competition, businesses increasingly focus on delivering the ever-evolving needs of their customers. And for that to happen, they seek help from customer relationship management (CRM) softwares. As the name suggests, CRM helps manage customer relations of the business by storing customer data, streamlining sales processes, identifying new sales opportunities and giving data-driven insights, among others. Ultimately, it helps in generating more revenue and increase overall business profitability.
CRM Industry to grow at a CAGR of over 13% in 2022- 2030
The need for cloud-based CRM software that provides real-time automated analytics has skyrocketed with the fast-paced digitalisation across various businesses, fuelled by the COVID-19 pandemic. As per Grand View Research, the global CRM market was worth $52.4 bn in 2021 and is expected to grow at a compounded annual growth rate of 13.3% from 2022 to 2030 while the U.S. CRM market is set to expand at 12% CAGR during the same period.
Exhibit 1: U.S. CRM Market Size, by solutions, for the period of 2020-2030
Salesforce – the company that took cloud computing to clouds
In 2000, the San Francisco-based Salesforce (CRM) sparked a rebellion in the software industry with the launch of its first cloud software that was focused around CRM. The big companies, at that time, like Oracle (ORCL) and SAP (SAP), also offered CRM software, however, they had to be installed and updated locally. Besides, these companies ended up making their software bulky and complex by adding multiple features to cater to their clients’ varied needs.
The then start-up Salesforce wanted to deliver simple and light software that anyone could use from anywhere and hence, heralded the age of cloud computing which is the norm today. In its 2004 initial public offering of $11 per share, Salesforce raised $110 mn. As of March 2022, the CRM giant is valued at about $200 bn with shares closinSg at $203.01 as at March 4 closing.
Market leader Salesforce owns 23% share in global CRM revenues
For eight straight years, cloud computing company, Salesforce (CRM) has been occupying the number one spot in the CRM market, according to International Data Corporation. As of 2021 first half, the company was the single largest player in the CRM market with a 23.9% share in global revenues. Its key competitors include Microsoft(MSFT), SAP, Adobe (ADBE) and Oracle.
Exhibit 2: Global CRM Market Share By IDC, based on 2021 First Half Revenue
Source: Company Website
Big acquisitions in Salesforce arsenal
Acquisitions have been central to Salesforce’s growth strategy. The company’s CRM software is known for its flexibility and wholesome solutions which is partly the result of its series of acquisitions of complementary technology start-ups. Whether it was the $27.7 bn takeover of business messaging application, Slack or the $6.5 bn deal to buy application networks builder, MuleSoft, Salesforce continues to fill gaps in business operations.
Exhibit 3: List of some of the biggest acquisitions made by Salesforce
Source: Data compiled by Stockal
Upbeat quarterly earnings with a 26% revenue growth
Salesforce recently garnered a lot of attention after posting upbeat quarterly results last week. For the three months ended January 31, the company generated revenues worth $7.33 bn, a jump of 26% from a year ago. Salesforce primarily makes money by charging subscription fees for its software. Sales from subscription and support makes for more than 90% of its total revenues. The sales numbers beat analyst estimates of $7.24 bn, proving that cloud computing is that pandemic trend which will continue to stay here and grow. Adjusted earnings per share for the quarter were $0.84 against market expectations of $0.74 per share.
The way ahead
The company is currently working towards integrating its offerings with Slack. According to co-CEO Bret Taylor, Slack is benefitting from the remote working trend and from being part of the company’s Customer 360 portfolio of CRM software. Salesforce sees Slack making $1.5 bn in sales in the fiscal year 2023.
The company anticipates revenue of $32 bn to $32.1 bn, for fiscal year 2023, higher than market expectation of $31.78 bn. Salesforce also raised full year GAAP operating margin guidance to about 3.6%. For the first quarter, it expects revenue between $7.37 bn and $7.38 bn, compared to analyst expectations of $7.26 bn.
Exhibit 4: 5-Year stock performance comparison among CRM, ORCL, SAP & GSPC
Source: Yahoo Finance; Data as of March 7, 2022 closing
Salesforce has also faced the brunt of broader market sector sell-off this year. However, with a strong outlook ahead, strong fundamentals in place and a market-leading position in the CRM industry, the long-term view of Salesforce seems bright. In the last five years, CRM delivered 143% gains, way above the 77% rise in S&P 500, 74% in Oracle and 10% gains in SAP.