Analysis: CRM

Even though shares are down Thursday, Salesforce.com (CRM) has been the subject of several positive notes from analysts over the past 24 hours following the big Dreamforce 2019 Investor Presentation. You can find management's presentation slide deck at the site here.

Running through the deck, the first few slides that you'll see are the numbers that every investor wants to know right away: revenue targets. In an update that was considered better than expected, Salesforce management raised its fiscal year 2020 revenue guidance to a range of $16.99 billion to $17 billion from $16.75 billion to $16.9 billion. This upwardly revised target reflects an impressive 26% compound annual return from fiscal year 2016. Looking further, management also established fiscal year 2021 revenue guidance, expecting revenues to be in the range of $20.8 billion to $20.9 billion, representing a 26% compound annual growth rate from fiscal year 2017.

And when it comes to Salesforce at Dreamforce, management always seems to provide some type of ambitious long-term revenue guidance target that is years beyond what the average investor is looking at. It did not disappoint this year as it established a $34 billion to $35 billion revenue target by fiscal year 2024. If Salesforce can deliver on this target, it will effectively double revenue from fiscal 2020, representing a roughly 20% compound annual growth rate over this time period that's consistent with management's goal of durable 20% long-term growth.

But how can investors trust revenue guidance that is so many years away? Indeed, a lot can change in the macro between now and fiscal year 2024, and those unpredictable changes can affect plans. But we think investors should have confidence in management's targets, because of the secular tailwinds in Digital Transformations. Salesforce.com and its customer relationship management applications operate in one of the most resilient industries in technology. If you are an enterprise and are forced into a tough decision on investment allocation, we think you simply cannot risk falling behind in your Digital Transformation investment with Salesforce. Why? Their suite of products helps businesses operate more efficiently and effectively as they increase revenue opportunities and drive down costs. That may sound Utopian, but as evidence the company provided the results of survey data that showed that on average Salesforce customers reported a 25% average increase in revenue, 30% higher customer satisfaction, 30% higher marketing return on investment, 26% decrease in IT costs, 57% faster app development, and 70% increased productivity. Even if there is a meaningful slowdown global economy, what enterprise would prioritize investment in other areas and risk missing out on the benefits Salesforce.com gives you?

Moving along the slide deck, there was a page that discussed management's strong merger and acquisition track record and the revenue growth success the company has had had with past deals like ExactTarget and Demandware. On Mulesoft, which some in the market felt Salesforce.com overpaid for at the time, the slide shows that management has made quick work using its integration applications with accelerating the revenue growth rate to about 52% today from about 38% at the time of the acquisition. Considering how some in the market were concerned with the price paid on its latest major acquisition splash -- Tableau Software for nearly $16 billion -- we think the impressive M&A track record shows that you have to trust management with deal making. It simply knows the market better than everyone else and what is needed to take the company to the next level. By the way, Jim Cramer interviewed Tableau Software CEO Adam Selipsky last night on "Mad Money." The link to the interview can be found here

There are plenty of other takeaways to be had from the presentation like Salesforce.com's $168 billion total addressable market, management's margin improvement playbook. There is always more to talk about with this great company. But once again, it looks like Salesforce.com has the game plan in place to grow revenues at a 20% compound annual growth rate over the immediate term, representing an achievement that few companies of its size can claim. The label of secular growth sometimes gets thrown around a little too loosely, but Salesforce.com truly represents a secular growth story that should continue in the years to come.