Whether to buy CRM stock often boils down to how an investor views two fundamental trends. One, rising corporate spending on digital transformation projects. And two,Salesforce.com's (CRM) penchant to make big acquisitions, such asSlack Technologies(WORK).
Salesforce on July 21 closed the Slack acquisition. Analysts expect Salesforce to discuss the Slack integration roadmap at the Dreamforce conference from Sept. 21 to Sept. 24.
Meanwhile, Salesforce stock reports second quarter earnings on Aug. 25. Analysts expect revenue to grow 21% to $6.24 billion.
"Salesforce has now closed the Slack deal and all eyes will be on the integration process," said Jefferies analyst Brent Thill in a report.
"We believe that the company needs to take a breather on large M&A, focus on integrating Slack, and deliver on margins to make the stock work. The compares are tough this quarter, but our fundamental checks are positive and expectations are conservative. The good news is that the easiest comp of the year is coming up next quarter."
After a tough start to 2021, software growth stocks have rebounded. The iShares Expanded Tech-Software Sector ETF rose 3.4% in July and 8.7% in June.
Salesforce recently announced a business-oriented video streaming service with original content. The company plans to launch the video streaming service in conjunction with the Dreamforce conference.
Aimed at an office-worker audience, the videos will feature original, live and on-demand content.
CRM Stock: Slack Shows Strong Customer Growth
Amid growing competition withMicrosoft(MSFT), Salesforce agreed to pay $27.7 billion for workplace collaboration software maker Slack on Dec. 1. That marked a 55% premium to Slack's closing price on Nov. 24, before reports of the deal surfaced.
Slack on June 3 reported strong customer growth in first quarter earnings. The new Slack Connect product had 91,000 customers as of April 30, up 23% from the January quarter. Slack Connect lets customers share collaboration tools with up to 20 external partners or organizations.
In addition, Salesforce in June expanded its strategic partnership with Amazon Web Services, the cloud computing unit ofAmazon.com(AMZN). Salesforce and AWS will provide low code tools to software developers.
Salesforce recently named Chief Legal Officer Amy Weaver as its new chief financial officer and president.
At an investor day on Dec. 8, Salesforce said it aims to double revenue to $50 billion by 2026, including a $4 billion contribution from Slack. At the same time, Salesforce stock lowered its organic revenue growth target to 19% from 20% over the next four years.
Salesforce Stock Joins Dow Jones Industrial Average
Amid the coronavirus pandemic, demand for next-generation collaboration and productivity tools has increased. In addition, many companies aim to automate operations and track key business metrics in order to support employees working from home.
One view is that spending ondigital transformation projectswill continue to be strong when the Covid-19 emergency eases. Such projects turn paperwork into electronic records and automate business workflows. More companies are investing in business analytics/artificial intelligence tools that scrub customer data.
CRM stock in 2020 was added to the Dow Jones Industrial Average. Further, Salesforce stock replacedExxon Mobil(XOM) in the 30-stock benchmark.
Meanwhile, CRM stock recently was added to theIBD Long Term Leaders list.
Also, the bar keeps rising when investors look at Salesforce's "biggest acquisition ever." Its purchase of Exact Target in 2013 was followed by e-commerce platform Demandware in 2016, and MuleSoft in 2018. Then Salesforce ponied up $15.7 billion in an all-stock deal to buy data analytics firm Tableau Software last year.
Then came the Slack deal.
The upbeat view is that acquisitions have enabled Salesforce to expand from its roots in customer relationship management software into marketing, e-commerce and other markets.
CRM Stock: Core Business Strength An Issue
Salesforce is one of manybig-cap tech stocks to watch. Started in 1999, Salesforce went public in 2004. Salesforce founder and Co-Chief Executive Marc Benioff worked at Oracle for 13 years before he left to start the software company.
Microsoft's Dynamics has gained traction as a lower-priced alternative to Salesforce tools, some analysts say. In addition, Microsoft is putting more salespeople behind the Dynamics business.
Also, Salesforce has been a fierce rival ofOracle(ORCL). Competition withAdobe Systems(ADBE), thedigital media and marketing software firm, has been rising.
Newer rivals includeZendesk(ZEN) andHubSpot(HUBS). And,Twilio(TWLO) hasjumped into customer relationship managementwith an acquisition.
Further, Salesforce software helps businesses organize and handle sales operations and customer relationships as they undergo digital transformation.
San Francisco-based Salesforce sells software under a subscription model. The customers of software-as-a-service, or SaaS, companies like Salesforce purchase renewable subscriptions, rather than one-time software licenses. Customers receive automatic software updates via the web.
Also, the company spends about 14% of revenue on research and development, relatively high for a software company. Increased hiring and wage inflation for software engineers also have been a headwind to margin growth.
Salesforce Stock: Fundamental Analysis
The company's first-quarter earnings and revenue came in above expectations. Adjusted profit climbed 13% from a year earlier to 97 cents per share, excluding investment gains, the company said. Revenue rose 23% to $5.96 billion.
The company said current remaining performance obligations rose 23% to $17.8 billion. That topped analyst estimates of $17.28 billion.
For the current quarter ending in July, Salesforce expects revenue in a range of $6.22 billion to $6.23 billion vs. estimates of $6.15 billion.
It forecast earnings in a range of 91 cents to 92 cents a share vs. estimates of 85 cents a share.
For full-year fiscal 2022, Salesforce projected operating margin of 18%, just above analyst estimates of 17.7%.
Salesforce Builds Artificial Intelligence Platform
One technology that Salesforce hopes will drive more revenue is artificial intelligence. The enterprise software maker introduced its "Einstein" AI software cloud platform in September 2016. The first Einstein AI software tools helped salespeople predict which deals are most likely to close based on a company's historical lead and account data.
In addition, Salesforce has integrated AI tools into other enterprise software offerings over the past three years,targeting industries such as financial servicesin digital transformation. Einstein AI primarily works via chat bots.
Salesforce in 2019 agreed tobuy data analytics firm Tableaufor $15.7 billion in an all-stock deal. Tableau provides data visualization software. In addition, it enables customers to build databases, graphs and maps using time series analytics, a technique that analyzes a series of data points ordered in time.
Also, Salesforce expects synergy between its Einstein artificial intelligence tools and Tableau's business intelligence software. In early October, Salesforce announced that it would rebrand Einstein Analytics as Tableau CRM.
CRM Stock: Recent Acquisitions
In 2018, Salesforce bought MuleSoft for $6.5 billion in cash and stock. MuleSoft's software automates the integration of new tools with legacy enterprise platforms and speeds application development.
Meanwhile, Salesforce spent $4.6 billion on acquisitions in 2016. They included e-commerce platform Demandware.
E-commerce has boomed amid the coronavirus pandemic. The shift to online shopping has provided a lift to Salesforce's "Commerce Cloud," which has its roots in the Demandware purchase.
Furthermore, Salesforce's $2.5 billion purchase of Exact Target in 2013 jump-started its move into marketing software.
Bullish analysts say Salesforce AI's tools, plus Tableau, plus MuleSoft will make a powerful combination for digital transformation projects.
Further, Salesforce aims to partner with IT services firms such asAccenture(ACN) to add customers. Despite U.S.-China trade tensions, Salesforce in July addedAlibaba Group(BABA) as a sales channel partner in China.
Is Salesforce Stock A Buy?
In cloud computing, Salesforce has partnered with Google for data analytics. In addition, Salesforce hasexpanded its venture capital investing.
According toIBD Stock Checkup, CRM stock currently has aRelative Strength Ratingof only 61 out of a possible 99. The best stocks tend to have ratings of 80 and above.
In addition, CRM stock has anAccumulation/Distribution Ratingof B-plus. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
As of Aug. 23, CRM stock trades below a proper entry point of 271.02 and is not in a buy zone, according toIBD MarketSmith analysis. Salesforce stock probably needs toforge a new baseto be actionable.