Deep Dive into CRM Market Performance

Salesforce.com (NYSE: CRM) is a growing force in the tech world. Founded by Marc Benioff, formerly of Oracle, it is a SaaS company on the cutting edge of customer service. The business core is tracking and managing customer data to glean insights and actionable strategies for business. Businesses that can utilize Salesfore.com’s CRM technology span all sectors, industries, and verticals. 

Its significance in the tech industry is profound. It is the first official SaaS company. Its launch opened the door to a rapidly growing industry. Software-as-a-Service existed in concept before Salesforce.com com, but this was the first time anyone had done it to the extent of Salesforce.com because of the Internet. The rise of the Internet has made it possible. Since then, Salesforce.com services have moved to the cloud where any person, business, or organization with access to the Internet can employ them. 

Salesforce Financial Performance Overview

Salesforce.com is a growing business. The company sustains a double-digit pace of top-line growth and widens margins as it grows. Growth in 2023 was driven by an increasing client count underpinned by the growth of large clients and deepening penetration of services. The company offers many cloud-based services, from simple to complex. Clients that get their feet wet with simple services typically add services over time. 

A price hike aided revenue growth. The company raised prices an average of 9% across its service package menu, which went into effect in August 2023. The hikes were the first in seven years and overdue, given the rise of inflation. 

AI also aided growth. Salesforce.com was among the first to implement AI into its operations and offerings, having done so well before 2020. Now, the company is leveraging its position, including the launch of Einstein, the first of-its-kind generative AI for CRM.

Guidance for this year was tepid relative to the consensus estimates but included another year of widening margin. The company forecasted growth to slow to about 8.5%, with the adjusted gross margin of 32.5% widening 200 basis points relative to Q4 2023. The takeaway is that this in-demand business has high margins, generates robust cash flow, and builds shareholder value. 

Quarterly Earnings Analysis

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The Q4 release was good. The company outperformed on the top and bottom lines and surprised the market with its capital return. Salesforce.com has been repurchasing shares and increased the authorization by $10 billion. That is good news but overshadowed by the dividend. Salesforce.com followed in Meta Platform’s footsteps and initiated a dividend. 

The $0.40 of $1.60 annualized payout is a meager yield, with the stock trading near $270, but it is significant for several reasons. The primary is that it opens the door to wider institutional ownership. Many funds are restricted from investing in non-dividend-paying stocks; this allows them to invest in Salesforce.com stock. Widening institutional ownership is good because it will help support the stock price and reduce volatility. Buy-and-hold stocks tend to have lower volatility than non-dividend-paying peers: dividend stocks that grow their distribution have the lowest volatility. 

Salesforce financials are solid; it will likely increase its distribution payment at the end of the year. The initial payment is an ultra-low 16% of the 2024 earnings forecast, allowing ample room in the cash flow for an increase. Cash flow and balance sheet highlights from Q4 echo that outlook. Those include cash flow positive operations, a 50% increase in free cash flow, cash and assets up, debt and liabilities down, and equity increased by 2%. Regarding leverage and dividend safety, the company’s total liability to equity is less than 0.7X, and coverage is ample. 

Year-over-Year Growth Comparisons

The YOY growth comparison in F2024/C2023 was weak compared to the prior year, but that is the worst that can be said. Other than that, the Salesforce earnings report was robust.YOY growth in F2024 held steady near 11.0% on a quarter-to-quarter basis, leaving the year up at 11.%, and the forecast for this year is constant. 

Analysts expect growth to run near 10% relative to 2024, but there are two things to remember. The first is that 2024 may be stronger than anticipated; Salesforce.com tends to outperform consensus nearly 100% of the time. The 2nd is that this year’s outperformance will impact next year’s outlook. Assuming the company continues to build momentum with client growth and penetration, revisions to the back half of F2025 and F2026 will be positive and lead the market higher. 

Salesforce Stock Price History and Trends

Salesforce stock trends are favorable to long-term holders. The stock has only trended higher despite a period of intense volatility. The early years were less volatile and were highlighted by slow, steady growth as SaaS services became entrenched in the tech landscape. 

Volatility entered the picture in 2018. The stock entered its first major correction in years in tandem with the broad market. The sell-off was driven by fear related to the Trump-Xi trade war and quickly reversed. 

The market moved sideways from late 2018 to early 2020 when it began to lift off. However, COVID-19 quashed a broad market rally and sparked a period of intense volatility. The stock sold off 40% in early 2020 but rebounded by 100% soon after. At that point, it was clear that the Internet, eCommerce, and Salesforce.com were vital to commerce generally, and another new high was reached. 

More recently, fears of slowing growth sent the market to long-term lows, but that opportunity has passed. The stock began to rebound in late 2023 with the rise of AI and its promise of a new age in productivity. Since then, CRM stock has risen 100% and set a new all-time high. The market is now pulling back from that high, consolidating recent moves and preparing for the next buying signal. 

Technical Analysis of CRM Stock

The price action in CRM stock is pulling back from a peak, but Salesforce stock analysis shows convergences in the MACD, RSI, and stochastic, suggesting the high will be reached again. New highs are likely because the convergences are long-term in nature and supported by business growth and improving profitability. 

The first target for critical support is the 150-day EMA. That EMA is associated with long-term investors and institutional money and may provide enough support for the market to rebound. If not, CRM shares could fall further.  The next target for solid support is near $260, but it is unlikely to hold if the EMA support breaks. The next target below that is near $240. 

Salesforce’s Market Sentiment and Analyst Ratings

Salesforce.com analyst ratings are bullish. Thirty-three analysts are covering the stock, a significantly high figure pointing to broad ownership in the name. They have the stock pegged at Moderate Buy, and the sentiment has been firm and steady for more than a year. The group sees the market advancing 15% at the consensus midpoint, and the midpoint is trending higher due to revisions. 

The latest Salesforce investment insights were released in early April, including numerous reaffirmed ratings and boosted price targets. The freshest price targets include the new high price target of $365 and have the market trading at the range’s high end. The new $365 high is about 35% above the current action and would be a new all-time high when reached. 

Future Outlook for Salesforce Stock

The Salesforce stock forecast is upwardly trending prices and declining volatility. The company is the premier and leading player in the CRM industry, an industry that it created out of thin air. The rise of the Internet led to its birth, the cloud to its growth, and now AI is taking into the future. 

Salesforce market analysis is supported by growth but, more importantly, profits. Profitability is accelerating due to leverage gained from new clients, penetration of existing clients, and internal efficiencies aided by AI. The real takeaway is that this company is maturing into a blue-chip tech stock with robust cash flows that support ample capital returns. 

The capital returns are solid. The dividend is undersized but plays into volatility reduction and increasing shareholder value. It is expected to grow over time. The share repurchases are ample, and help offset share-based compensation and reduce the share count. 

The stock price is down after hitting a peak and may fall further before it rebounds. However, analysts also see value in this stock, likely leading the market to higher highs by the end of calendar 2024. The freshest targets suggest new highs and a sustained rally that could lead this market to advance 35% or more within twelve to eighteen months. CRM stock performance should lead the market. 

Source MarketBeat