CRM Stock Forecast: Salesforce Gains Momentum with Tableau Acquisition

This CRM stock forecast article was written by Megan Gomberg, a financial analyst at I Know First.

CRM Stock Forecast

Summary: 

  • Largest Acquisition of Tableau means more customers and connections for Salesforce
  • Revenue tops $13 billion in Q1 2019
  • Benioff has an eye for acquisitions, With Tableau as the largest thus far
  • I Know First remains bullish on a 12-month market trend forecast for CRMs stock supporting consensus

Recent Acquisition Sets Salesforce Apart

Salesforce, a global leader in customer market relations, still remains with the largest market share on the market.There are a variety of products available that include Sales Cloud, Sales Performance, Sales Collaboration and Marketing Cloud. As with other CRM products, the main goal is to help organizations manage and monitor sales and create an efficient process to identify gaps. In the following we will try to analyze the company position as of today and based on the results provide CRM stock forecast.

Big data is a hot space for acquisitions this past year. Salesforce is following suit to this trend. It is no coincidence that the last article from I Know First was written shortly after a large acquisition of Datoramathat brought AI to the marketing space for enterprises. This acquisition strengthened the power of Salesforce AI and also expanded the market reach to Israel and all of Datoroma’s current customers. 

Last month on June 11, 2019 Salesforce made its largest acquisition of Tableau for $15.3 Billioncompleted as an all stock transaction. Tableau is a software that utilizes tools for visualizing numbers in the form of graphs, charts and maps. This tool is used by a variety of industries because information is easier to understand information in different forms. This deal will be influential because all of the software developers based in Seattle will be at the disposal of Salesforce, which will become the second headquarters. 

Along with Tableau comes their 86,000 business customers, some of which include Charles Schwab, Verizon, Schneider Electric, Southwest and Netflix. Salesforce is staying on their toes to anticipate the needs of customers in order to grow in a way that meets the needs of its users. 

Financial Snapshot

The acquisition of Tableau affected the internal finances of the company as well. Revenues of $3.737 billion improved more than 24% YoY. The end of this year’s top-line estimate is currently estimated to be $15.950 billion.

Currently, the ambitious management at Salesforce of Mac Benioff and Keith Block have a annual revenue goal of $28 Billion by 2023. Salesforce has managed to keep incredible growth and size entering its third decade with a market cap of more than $120 billion

One important financial statement to look at for Salesforce is the Cash flow statement. As far as cash flow statement shows the movement of cash and represents the cash on hand of a company it is the start point to see and analyze the operations of the company. Salesforce’s cash flow statement should give us an accurate depiction of how Salesforce actually stands in terms of generating value.

CRM Stock Forecast

[Source: Q1 Salesforce]

Net Income has increased from 2018 to 2019 and operating cash has increased as well. Although money was used in investing activities, this typically spurs growth and there was still a positive $4,110 of cash at the end of the period. It is difficult for tech companies to be profitable because of all of the R&D costs, and Salesforce is clearly demonstrating to be a profitable and still growing company. The trailing PE ratio is at 107.90 which is very high compared to competitors SAP (33.87) and Oracle (19.82). One of the most obvious causes for such high PE ratio indicates the investors are anticipating growth, possibly due to the recent acquisition of Tableau.

Investors may be anticipating growth because the quarterly revenue growth (YoY) is 24.30% and growing almost by a quarter each quarter. This is much larger than Oracle’s revenue growth of 1.10% (YoY) The PEG ratio is 1.86 which indicates the stock might be overvalued, but the growth rate is still relatively high at 58.01%.

Consistent Signs of Growth

Salesforce says this acquisition of Tableau will add 400 million to the 2020 revenue, while decreasing short term EPS by 2 cents. The company has achieved growth in the past five years to 2018 with industry revenue estimated to increase at an annualized rate of 25.8% (IBIS World Industry Report OD4592). As revenue has increased from $2,851 million to $3,737 million, it is evident that the acquisition had a positive effect on sales. Another aspect that represents the previous and expected growth is in the EPS. Earnings jumped from 2017 at $0.17 EPS to $1.44 EPS in 2018. Earnings are expected to increase to $1.75 (Valueline Salesforce). This is one of the drivers for the overall stock price to go up in the foreseeable future.

An important metric for such tech companies is profitability because R&D can hold very high costs and development takes time to jump-start. However, Salesforce has proven themselves going out of the net loss of $47 million position in 2015 to a net profit position of $1,110 million in 2018. (Valueline Salesforce).

Benioff’s Mass of Acquisitions

Those M&A transactions may have been driven by Google’s announcement to pay $2.6 billion for Looker, another data analyzing company for customers. The race for data, and more specifically data that can be understood quickly, continues and is propelled by the flurry of M&A. Microsoft has the valuable data of corporate employees from their acquisition of LinkedIn in addition to all of the huge technology companies with seemingly unlimited resources.

In the past, Salesforce has acquired many companies including ExactTarget Inc, Buddy Media, EdgeSpring, Golnstant, Buddy Media, Rypple, Twin Prime, etc. Benioff has been a major proponent of acquisitions as Salesforce has increased revenue by acquiring more then 60 companies in 20 yearsThe inorganic innovation that Salesforce prides itself on drives the technology and provides them with product advantages which in turn increases revenue. Revenue has seen a sustainable increase in the last fiscal years from 10.5B in FY 18 to a current $14.01 B. This is above the projected revenue of $13.17B.  The acquisition of Tableau is expected to create a synergy gain of 0.5% of combined total revenue in 2020.  

Clear Dominance in the Market

CRM Stock Forecast

[Source: Ibisworld.com November 2018]

CRM system providers have created an efficiency that eliminated the need for companies to invest and manage their own infrastructure. The simplification that is happening with this technology and products is widespread and competition is increasing.

Behind Salesforce holding 54.9% of the market are SAP, a German software corporation that develops and publishes enterprise software applications focusing on business analytics. However, SAP is best-known for its enterprise resource planning (ERP) software. Oracle holds 7.2% of the market as the world’s largest enterprise software company providing database and middle ware software, application software, cloud infrastructure, hardware system and Salesforce is just a segment of this large company that brings in $38.0 billion a year in revenue (IBIS World Industry Report OD4592). Microsoft and other companies hold the rest of the market share. Salesforce has been able to identify a niche in a large software industry and takeover the market share. So, in the United States many large companies and corporations have entered the CRM space, but Salesforce has specialized in creating an online platform that is easy to use and consumers have responded well to this shown through the increasing sales.

Moving forward in the Industry

As the leader of the industry, Salesforce should set up trends and will create the path for future companies that enter the industry. After experiencing several years of double-digit growth increasing revenue is expected to decrease. Over the five years to 2023, industry revenue is forecasted to fall at an annualized rate to 0.1% to $15.6 billion (IBIS World Industry Report OD4592). With low interest rates and high corporate profit, companies were able to invest in the new software development, but now uncertainty in the market leaves companies not as willing as before to invest into R&D.

The industry is mature as it has contributed greatly to the GDP of the United States and is expected to increase to contribute 6.9% over the next 10 years (IBIS World Industry Report OD4592). This is important because as the industry develops and new technology is created, companies are bringing customer relationship management as an essential part of their business plan. Also, with increasing use of the cloud and social networking, this will strengthen revenue of the industry. As a result, Salesforce may have an increased revenue since is it a leading player in the industry.

CRM Stock Forecast

Conclusion

Looking at the financial statements and the previous acquisition financials, I would take bullish outlook on CRM stock forecast. With an increasing use of technology and integration of CRM systems in major corporations, there is room for growth and expansion. From a financial standpoint,  there has been substantial growth in the past and although the industry is relatively stable, I believe that Salesforce has stayed on top of the trends and continues to infiltrate new markets and geographic locations. Due to the breadth and depth of the product lines, Salesforce should be able to continue growing and stay on top of the large market share that they control now.

I Know First Current CRM Stock Forecast

The I Know First machine learning algorithm currently has a positive CRM stock forecast. The stock predictions are bullish for horizons from 1 month to a year. It is having a signal of 5.25 and predictability indicator of 0.74.

I Know First Past Success with CRM Stock Forecast

CRM Stock Forecast

On July 16, 2018 I Know First had a bullish CRM stock forecast supporting confidently that the stock price would increase. Following a previous M&A deal with Datorama and other acquisitions, this has given Salesforce many opportunities to grow. As seen on the graph below, I Know First gave an accurate prediction with signal of 238.55 and predictability of 0.61, so the stock price has increased by 6.45% since then.

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