Please ensure Javascript is enabled for purposes of website accessibility

Is the Party Over for Salesforce?

By Motley Fool Staff – Sep 1, 2018 at 11:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Though last quarter’s performance was solid, uninspired guidance in its latest report sapped the CRM company's share price.

In this segment from the MarketFoolery podcast, host Mac Greer and Bill Mann, The Motley Fool's director of small-cap research, talk about enterprise software-as-a-service major (CRM 1.62%), which delivered its latest earnings report this week.

Earnings for the customer relationship management specialist were excellent -- up 27% year over year, in part due to its big acquisition of Mulesoft. But the market punished it for offering a weak outlook. Share prices have tripled in the past five years, so investors could be forgiven for fearing that it might be plateauing. Bill explains why he thinks differently.

A full transcript follows the video.

10 stocks we like better than
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

This video was recorded on Aug. 30, 2018.

Mac Greer: Let's begin with Salesforce. Better than expected earnings, but shares down on a disappointing earnings outlook. Now Bill, Salesforce is an enterprise software company. That means that they are selling their software to businesses.

Bill Mann: And a lot of them.

Greer: And a lot of them. The stock's tripled over the last five years. Is the party over?

Mann: No, no, I don't think it is. Every time you open up Bloomberg, every time you open up CNBC, Wall Street Journal, who else can I plug here, there's another company that is rolling out or integrating artificial intelligence and customer relations software, which is basically what Salesforce does. I am no expert, as I am not their target market, but I am to understand that they are the best in the business. They have a very multifaceted approach. They have multiple divisions, each of which could be worth billions of dollars if they were their own companies.

And they had great earnings. I mean, they earned well over $3 billion, $0.71 a share, 27% over the same quarter of last year. Some of that had to do with the integration of their largest merger that they've taken on, their largest acquisition of MuleSoft that happened earlier this year.

Greer: Great name, by the way.

Mann: It is a great name. It doesn't sound particularly software-y.

Greer: No. I'm not sure it gives me a lot of confidence.

Mann: I mean, if you want to talk about a picks and shovels type of business, I think MuleSoft is incredibly well-named. In fact, I think Salesforce should have taken on MuleSoft as --

Greer: I don't like the soft part. I like the mule part.

Mann: Just Mule. Fair enough. [laughs]

Greer: [laughs] MuleSoft aside, though, this space, you've got some big players here. You've got Microsoft, you've got Oracle, you have IBM. What's the special sauce for Salesforce?

Mann: Well, I think Salesforce, they are not particularly good at any one thing. That came out exactly wrong. "Basically, they're terrible at everything, and that's what makes them great." No, they have multiple divisions. I think what Salesforce has done better than anybody is being a full-service suite to their clients. It allows them to take on the largest clients, the largest enterprises, the world, the U.S. government, several departments of the U.S. government are clients. One of which is pretty interesting. There was a petition earlier this year among Salesforce employees about the contract that they have with U.S. Border Patrol. They also announced that they're opening an ethical office, because they want to make sure that their software is being used ethically.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Bill Mann has no position in any of the stocks mentioned. Mac Greer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool owns shares of Oracle and has the following options: long January 2020 $30 calls on Oracle. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.