When customers need to contact a business, they want the process to be simple, fast, and productive. They don't want to talk to several different agents, repeating themselves with each new interaction. In other words, they expect a great experience. And when it comes to managing customer relationships, salesforce.com (CRM 3.45%) is the best in the business.
Over the last year, the pandemic made it even more critical for brands to effectively engage and retain their customers. This catalyst drove Salesforce's stock price up 27% over the last 12 months. But this company still has a bright future.
Here are four reasons Salesforce is a buy.
Image source: Getty Images.
1. Massive market opportunity
Salesforce's Customer 360 platform is the AI-powered foundation that supports the company's various cloud-based software tools. These solutions help enterprises work together to provide a high-quality customer experience across marketing, sales, commerce, and customer service. This translates into higher satisfaction and greater customer loyalty, both of which could make the difference between a thriving enterprise and a forgotten business. In other words, Salesforce is a powerful partner.
As a result, management expects the company's market opportunity to reach $175 billion by fiscal 2025 -- over eight times Salesforce's trailing 12-month revenue. That gives this software giant plenty of room to grow.
2. Strong sales growth
According to the International Data Corp. (IDC), Salesforce is the clear market leader in the customer relationship management (CRM) space. The company has nearly 20% market share, while second-place Oracle has just over 5%. This has helped Salesforce onboard over 150,000customers, which in turn has powered strong revenue growth.
|
Metric |
2018 |
Q3 2021 (TTM) |
Change |
|---|---|---|---|
|
Revenue |
$10.5 billion |
$20.3 billion |
93% |
Data source: Salesforce SEC Filings. Note: Q3 fiscal 2021 ended Oct. 31, 2020. TTM: trailing 12-months.
However, as the digital transformation continues to reshape the world, one thing that will not change is the importance of customer-centric business models. In fact, it's becoming even more critical for businesses to understand their customers so that they can provide top-notch service. That should help Salesforce grow its top line for many years to come.
3. Big partner network
Salesforce works with consulting partners like Accenture and Deloitte Digital to help potential clients develop and implement CRM solutions. Additionally, Salesforce allows developers to build apps for the Customer 360 platform.
These partners have helped create the Salesforce App Exchange, a collection of thousands of third-party tools that integrate with the company's CRM platform. For example, Twilio can be used to send SMS messages from within Salesforce, and Shopify merchants can integrate data from multiple storefronts to create a unified source of customer information. In short, these third-party solutions extend Salesforce's functionality, helping clients customize the platform to their needs.
Moreover, these add-ons can be installed with just a few clicks, and that simplicity has driven widespread adoption. In fact, according to Salesforce, 86% of clients use at least one product from the App Exchange. Even more impressive, research firm Forrester has recognized the Salesforce App Exchange as the leading software-as-a-service (SaaS) marketplace, outranking larger rivals like Amazon Web Services.
4. A history of smart acquisitions
In 2019, Salesforce acquired data analytics specialist Tableau for a pricey $15.7 billion, which was the company's largest acquisition at the time. With this move, Salesforce added Tableau's analytics capabilities to Customer 360, blending AI-powered insights with its own customer data to improve sales and marketing. Despite the price tag, the deal has been a success. In fact, CEO Mark Benioff recently called it the most successful acquisition in the history of the software industry. Moreover, in the second quarter of fiscal 2021, Tableau's contribution to revenue jumped 41%, powering 66%growth in Salesforce's "platform and other" segment.
Recently, Salesforce acquired collaboration specialist Slack Technologies (WORK +0.00%) for about $27.7 billion, which is now the largest acquisition in the company's history and the second-largest acquisition ever in the software industry. During the company's most recent earnings call, Benioff indicated that Slack will become the new user interface for Salesforce Customer 360, improving communication between employees, customers, and partners.
Going forward, management estimates that Slack will grow its top line at 38% per year through fiscal 2026, powering Salesforce as a whole to reach $50 billion in annual revenue over the same time period. Investors should watch this merger, as it could be a game-changer for the CRM specialist.
A final word
Increasingly, Salesforce and Microsoft (MSFT 0.60%) are competing for the same customers. Salesforce was a pioneer in the SaaS and CRM space, but Microsoft is pushing its own CRM solution, Dynamics 365. And of course, Microsoft and Slack had an intense rivalry prior to the acquisition, which has now been inherited by Salesforce.
Of the two, Microsoft is much bigger and more profitable, but Salesforce is investing heavily in its operations and the company is growing more quickly. Investors should keep this situation on their radar. If Microsoft's Dynamics 365 starts to displace Salesforce's Customer 360, it could be a red flag.
Despite this rivalry, Salesforce is an incredible growth story. Since its initial public offering (IPO) in 2000, the company has already achieved a market cap of over $220 billion. And given the company's massive lead in the CRM space, Salesforce should be a major player in the enterprise software market for many years to come.
