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Why Is Everyone Talking About Salesforce Stock?

By Leo Sun – Sep 25, 2021 at 7:55AM

Key Points

  • Salesforce hosted its latest investor day on Sept. 23.
  • The cloud giant raised its full-year revenue guidance and initiated its guidance for fiscal 2023.
  • It remains on track to more than double its annual revenue by fiscal 2026, and its stock still looks cheap relative to its growth.

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The customer relationship management giant's latest investor day presentation impressed the market.

Salesforce.com's (CRM 0.73%) stock price jumped 7% to an all-time high on Sept. 23 after the cloud services giant boosted its revenue forecast for the current fiscal year and initiated its guidance for fiscal 2023. It unveiled those updated numbers during its latest investor day presentation.

Let's review Salesforce's updated guidance, why it's attracting so much attention, and if investors should still buy this high-flying tech stock.

Salesforce Tower in San Francisco.

Image source: Salesforce.

Taking a look at Salesforce's new guidance

Salesforce now expects to generate $26.25 billion to $26.35 billion in revenue in fiscal 2022, which ends in January 2023. That's a $500 million increase from its prior forecast of $26.2 billion to $26.3 billion.

If we look back at Salesforce's guidance since the end of fiscal 2021, we'll notice that it's repeatedly raised its expectations for fiscal 2022:

Period

Q4 2021

Q1 2022

Q2 2022

Investor Day

FY 2022 Revenue Guidance

$25.65 billion to $25.75 billion

$25.9 billion to $26 billion

$26.2 billion to $26.3 billion

$26.25 billion to $26.35 billion

Growth (YOY)

20.7%-21.2%

21.9%-22.4%

23.3%-23.8%

23.5%-24%

Source: Salesforce. YOY = Year over year.

Those gradual hikes might seem minor, but they indicate Salesforce is generating stronger-than-expected growth. They also suggest the company's recent takeover of Slack, which closed on July 21, is generating more revenue than it originally anticipated.

Salesforce also initiated its guidance for fiscal 2023. It expects to generate $31.65 billion to $31.8 billion in revenue for the year, which would equal 20.3%-20.9% growth from the midpoint of its fiscal 2022 guidance. Analysts had originally expected its revenue to rise 19.6% next year.

Salesforce also expects to generate a GAAP operating margin of 3%-3.5% and a non-GAAP operating margin of 20% in fiscal 2023. Both estimates would represent a significant year-over-year expansion from fiscal 2021 and 2022 -- even as its integration of Slack slightly reduces its operating margins.

Period

FY 2021 (Actual)

FY 2022 (Estimate)

FY 2023 (Estimate)

GAAP Operating Margin

2.1%

1.8%

3%-3.5%

Non-GAAP Operating Margin

17.7%

18.5%

20%

Source: Salesforce.

Why is Salesforce's new outlook attracting more bulls?

Last December, Salesforce management predicted the company would more than double its annual revenue from $21.25 billion in fiscal 2021 to over $50 billion in fiscal 2026. At the time, it predicted that growth would be driven by the expansion of its total addressable markets (TAM) for its sales, service, commerce, marketing, platform, integration, and analytics services.

Salesforce management reiterated that long-term revenue forecast at the company's latest investor day, as well as its bullish expectations for its main end markets. Between calendar 2021 and 2025, Salesforce expects its TAM to grow at a CAGR of 13%, and for its own growth to outpace the broader market. Salesforce's updated guidance at its latest investor day indicates it's still on track to hit its long-term targets.

Should you buy Salesforce's stock at its all-time high?

Salesforce's stock trades at 62 times forward earnings and 10 times this year's sales. That price-to-earnings ratio might seem a bit high, but cloud companies are usually judged by their revenues instead of their profits -- and Salesforce's price-to-sales ratio is fairly low compared to that of its industry peers. 

Adobe Systems (ADBE -0.44%), which is growing its annual revenue at a similar rate as Salesforce, trades at 19 times this year's sales. Adobe's cloud software business tends to be more seasonal than Salesforce's, and it hasn't offered investors any longer-term forecasts for the next few years.

Microsoft (MSFT -0.04%), which competes against Salesforce in the customer relationship management (CRM) market with Dynamics, trades at 12 times this year's sales -- but it's growing slower than Salesforce, and Dynamics remains a distant underdog in the CRM market.

Therefore, it's not too late to buy Salesforce. Its growth is impressive, its stock isn't expensive, and it's well-poised to profit from the digitization of businesses and a growing need for cloud-based services.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Salesforce.com. The Motley Fool owns shares of and recommends Microsoft and Salesforce.com. The Motley Fool recommends Adobe Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$153.35 (0.73%) $1.11
Microsoft Stock Quote
Microsoft
MSFT
$247.49 (-0.04%) $0.09
Adobe Inc. Stock Quote
Adobe Inc.
ADBE
$334.30 (-0.44%) $-1.48

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