Please ensure Javascript is enabled for purposes of website accessibility

Is Salesforce Stock a Buy?

By Leo Sun - Jun 6, 2021 at 10:00AM

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

The cloud king just turned in its "best quarter ever" -- but will its impressive growth rates silence the bears?

Salesforce's (CRM -0.22%) stock recently popped after the cloud services company posted its earnings report for the first quarter of fiscal 2022. Its revenue rose 23% year-over-year to $5.96 billion, beating estimates by $70 million, and grew 20% on a constant currency basis.

Its non-GAAP earnings increased 73% to $1.21 per share, which cleared expectations by $0.33, as its GAAP earnings more than quadrupled to $0.50 per share. Gains from its strategic investments boosted its non-GAAP and GAAP earnings by $0.24 and $0.23 per share, respectively.

Six people lie inside an painting of a cloud.

Image source: Getty Images.

During the conference call, CEO Marc Benioff proclaimed it was the "best quarter Salesforce has ever had." Let's see why Benioff made such a bold statement, and whether or not it's time to buy Salesforce.

Accelerating revenue growth

Salesforce's revenue growth accelerated from its 20% growth in the fourth quarter of fiscal 2021. It also surpassed its own guidance for about 21% growth, which had already been raised in the fourth quarter. Its revenue increased by the double digits across all four of its core businesses.



Year-Over-Year Growth


$1.4 billion



$1.5 billion


Platform and Other

$1.7 billion


Marketing and Commerce

$0.9 billion


Data source: Salesforce.

It also generated double-digit sales growth across the Americas, EMEA (Europe, Middle East, and Africa), and APAC (Asia-Pacific) regions, even as currency headwinds throttled its growth in several markets.



Growth (YOY)

Growth (YOY, CC)


$4.1 billion




$1.3 billion




$567 million



Data source: Salesforce. YOY = Year-over-year. CC = Constant currency.

Salesforce's current remaining performance obligation (CRPO), which represents its expected future revenue from existing contracts over the next 12 months, rose 23% year-over-year to $17.8 billion, which indicates its revenue growth will remain comfortably above 20% for the rest of the year.

That's why Salesforce raised its full-year revenue guidance by $250 million to approximately $26 billion, which would represent 22% growth from 2021. It also reiterated its goal of generating $50 billion in annual revenue by fiscal 2026.

Rising cash flows and inorganic growth

Salesforce's operating cash flow jumped 76% year-over-year to $3.2 billion during the first quarter, while its free cash flow soared 99% to $3.1 billion. It usually generates its strongest cash flow growth in the fourth and first quarters, since that's when it usually collects its annual fees.

Nonetheless, Salesforce's year-over-year growth remains robust, and indicates it can still easily fund new investments and acquisitions. Its cash, cash equivalents, and marketable securities climbed 53% year-over-year to $15 billion during the quarter.

Speaking of acquisitions, Salesforce expects to close its takeover of Slack (WORK) in the second quarter. That $27.7 billion acquisition, which includes $26.79 in cash and 0.0776 shares of Salesforce's common stock for each share of Slack, will temporarily reduce its cash flows and earnings this year.

However, integrating Slack's enterprise communication platform into its CRM (customer relationship management) services will likely lock in more users, break down the barriers between its cloud services, and enhance its Customer 360 platform for digitizing customer experiences.

Slack will feed more data into Salesforce's data-crunching Einstein AI platform, and complement its prior acquisitions of the application network provider MuleSoft and the data visualization platform Tableau.

Stable operating margins

Salesforce controls about a fifth of the global CRM market, according to IDC, while its closest rivals all hold single-digit shares. That market-leading position, along with its expanding ecosystem of services, gives the company tremendous scale and plenty of pricing power.

That's why its non-GAAP operating margin expanded 710 basis points year-over-year to 20.2% during the quarter, and its GAAP operating margin rose 880 basis points to 5.9%.

For the full year, Salesforce expects its non-GAAP operating margin to rise about 30 basis points to 18%, but for its GAAP operating margin to dip 70 basis points to 1.4% as it integrates Slack.

An attractive balance of growth and value

Salesforce expects its non-GAAP EPS to decline 22%-23% and for its GAAP EPS to plunge about 95%. Those declines, which can mainly be attributed to its takeover of Slack, seem steep -- but Salesforce actually raised both earnings estimates from its previous forecast in the fourth quarter.

Based on these expectations, Salesforce trades at about 54 times forward earnings and eight times this year's sales. Its price-to-earnings ratio might seem steep for a company with declining earnings, but its profits should rebound after it integrates Slack. Meanwhile, its price-to-sales ratio still seems cheap compared to those of other cloud stocks with comparable revenue growth.

Therefore, I believe Salesforce still offers an attractive balance of growth and value in this market, which has been tough for more higher-growth tech stocks trading at frothy valuations. Concerns about Salesforce's near-term profits might weigh down the stock this year, but I believe it will continue climbing over the long term as it marches toward doubling its annual revenue by 2026.


Leo Sun owns shares of The Motley Fool owns shares of and recommends and Slack Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Salesforce, Inc. Stock Quote
Salesforce, Inc.
$189.75 (-0.22%) $0.42
Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

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