Shortly after the opening bell, we will be initiating a position in Salesforce.com (CRM) , buying 300 shares at a bid/ask of roughly $132.35/$132.75. Following the trade, CRM will represent 1.43% of the portfolio.
We are calling up Salesforce.com from the bullpen (the full list can be found here), because we believe the company's growth story fueled by cloud adoption and business innovation has become too strong to ignore. You can read our initial bullpen Alert on this "cloud king" here. The company's 2018 Annual Report can be found here and its fiscal first quarter 2019 results (reported May 29, 2018) can be found here.
Salesforce ticker is CRM, and customer relationship management is exactly what they specialize in. In fact, Salesforce is the #1 CRM provider five years running according to IDC. Much of the company's success can be attributed to its Customer Success Platform, a premier enterprise cloud ecosystem. The Customer Success Platform is a comprehensive portfolio of service offerings that provides a single view of the customer across all touchpoints. Essentially, with everything becoming more connected, Salesforce is the one that brings together the cloud, mobile, social, IoT, and artificial intelligence technologies to help businesses better understand data and what their customers want.
The Salesforce Platform is also home to the Einstein, which is an artificial intelligence technology that delivers almost 2 billion predictions every day and helps make recommendations based on unique and specific processes and customer data. Again, Salesforce is all about innovating the customer experience, and the Einstein represents a data scientist that makes customer relationship management smarter and efficient.
Our bullish thesis on CRM is mainly predicated on:
- Let's first start off with the significant opportunity has through its total addressable market of $120 billion.
- Within that, Salesforce is targeting between $21 billion to $23 billion in revenue by FY 2022, and we believe this is attainable through the company's growing product portfolio, a strengthening U.S. economy, and an expanding opportunity internationally.
- And Salesforce is taking share in the enterprise software market much faster than its competition. See below for how they have fared against Oracle (ORCL) and (SAP) . Salesforce is simply the best at what they do, and businesses want to team up with the best.
November 2017 Analyst Day Presentation
- Revenue is ~70% U.S. based, with no other country accounting for more than roughly 3% of sales, insulation against international political turmoil
- Salesforce also uses a billings growth and recurring revenue model (something we always value highly)
- Not to mention, there is a rapid digital transformation occurring throughout multiple industries, and Salesforce is at the center of it
- Businesses want a 360-degree view of their customers, and that is what Salesforce delivers
- The digital transformation has been accelerated because of global economic expansion and tax reform
- We also believe the MuleSoft acquisition has been underappreciated
- MuleSoft is a leading integration platform helps Salesforce customers connect to all their data across legacy systems and any public or private clouds
- Many believe that Salesforce overpaid in this deal, but when an acquisition accelerates a company's mission, it is the right move in the long-term
- Think about it like this, where Salesforce leads the way in helping companies connect with their customers, MuleSoft is the link that helps organizations make and implement changes by connecting applications, data, and devices
We are initiating the position with a price target of $155, which reflects roughly 10 times price to FY 2020 sales. And with a long-term, secular growth story in place and Salesforce working towards grabbing share of its $120 billion total addressable market, reaching its $21 to $23 billion revenue target by FY 2022, we see plenty of additional room for upside.