Salesforce (CRM 1.27%) is one of the world's largest cloud software companies, but it's still much smaller (as measured by market cap) than Amazon, Microsoft, and Alphabet -- which all saw their market caps cross the trillion-dollar mark in recent years. Valued at $280 billion, Salesforce would still need to nearly quadruple its market cap to join the four-comma club.
That might sound like a lofty goal, but Salesforce was only worth $28 billion 10 years ago. Let's review its growth rates, long-term catalysts, and valuations to see if it has a shot at becoming a trillion-dollar company by the end of the decade.
Image source: Getty Images.
How fast did Salesforce grow over the past decade?
Salesforce is the world's largest provider of cloud-based customer relationship management (CRM) services. It capitalized on the growth of its core business to expand its ecosystem with additional cloud-based e-commerce, marketing, analytics, data visualization, and enterprise collaboration services. The company locked in those clients with sticky subscriptions.
From fiscal 2014 to fiscal 2024 (which ended this January), Salesforce's revenue grew at a compound annual growth rate (CAGR) of 24%. A lot of that growth was organic, but it also made some big acquisitions -- including Demandware, Mulesoft, Tableau, and Slack -- to expand its ecosystem.
Salesforce turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2017. Its profitability has been lumpy, but its annual GAAP net income still increased at a CAGR of 44% from fiscal 2017 to fiscal 2024. It also declared its first-ever dividend earlier this year and boosted its buyback authorization by $10 billion.
Salesforce could struggle to maintain those growth rates
However, tech companies usually don't start paying dividends or initiate multibillion-dollar buybacks unless they're running out of room to grow. That's what happened to Salesforce over the past two years.
As the table illustrates, four of its five main cloud platforms (Sales, Service, Platform & Other, Marketing & Commerce, and Integration & Analytics) experienced significant growth slowdowns in fiscal 2024.
|
Revenue Growth by Segment |
FY 2023 |
FY 2024 |
|---|---|---|
|
Sales |
19% |
11% |
|
Service |
18% |
12% |
|
Platform & Other |
36% |
11% |
|
Marketing & Commerce |
21% |
9% |
|
Integration & Analytics |
16% |
20% |
| Total |
22% |
11% |
Data source: Salesforce. Constant currency terms.
Salesforce's growth decelerated as the macro headwinds drove many companies to rein in their cloud software spending. It also faced tougher competition from faster-growing CRM platforms like Microsoft's Dynamics CRM. Activist investors also pressured the company to cut costs and pause its big acquisitions.
Salesforce expects its revenue to only rise 8%-9% in fiscal 2025. Analysts expect its revenue to grow at a CAGR of 10% from fiscal 2024 to fiscal 2027. That deceleration is disappointing, but Salesforce has been aggressively cutting costs and buying back more shares to grow its earnings per share (EPS) instead. That's why analysts expect its EPS to increase at a CAGR of 28% from fiscal 2024 to fiscal 2027.
How much could Salesforce be worth in 2030?
If Salesforce matches Wall Street's estimates and continues to grow its EPS at a CAGR of 20% from fiscal 2027 to fiscal 2030, it could generate a GAAP profit of $15.20 per share by the final year. With a price-to-earnings ratio of 30, its stock would be trading at about $460 -- which would represent a 60% gain and lift its market cap to about $450 billion. Even if it's trading at a more generous 50 times earnings, its stock price would only reach $760 per share, with a market cap of $740 billion.
Therefore, it seems unlikely that Salesforce will join Microsoft, Amazon, and Alphabet in the trillion-dollar club by the end of the decade. So instead of focusing on its market cap, investors should see if Salesforce can consistently grow its margins and earnings without accidentally eroding its defenses against its smaller cloud software competitors.
