Is Salesforce Stock a Good Buy Today? Salesforce Stock Analysis $CRM (2023)

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Content

Hi I'm Jimmy in this video we're doing a deep dive on Salesforce ticker symbol CRM.

So this video is part of our Dow 30 series, where we're analyzing all 30 companies in the Dow Jones Industrial Average.

We started with Walt Disney and moving right down the list.

Next up, we've got Procter Gamble and basically, what we're going to do is we're going to look at the basic basics of each business, we're going to look at some of the numbers and then try to come up with a fair value for each company and try to determine what are the best value stocks, the best dividend, stocks that are currently in the Dow Jones Industrial Average.

Okay, now, let's jump into the basics of salesforce's business.

So this is a breakdown of salesforce's Revenue according to fiscal year 2023., by the way, if we're curious, their fiscal year actually ends in January, so January 31st is the end of their fiscal year.

If the fiscal year ends in January 31st of 2023 that the numbers from really 2022, mostly 2022, are fiscal year 2023.

So if you're curious later, when we look at some of the numbers- and you see fiscal year, 2023 because theirs ends in January, that being said, we could see that the revenue is broken into two primary segments subscription subscriptions and services.

Now Professional Services is a real, simple one.

It's anything from like uh training or a company wants to set up.

You know their account.

Well, they could pay a fee for that and that Revenue lands in the seven percent of 2023 Revenue most of their revenue comes from subscriptions.

We could save that account for 93 of total revenue and just so we're clear Salesforce primarily deals with businesses.

So this is a business to business company.

Now they actually do a good job of breaking this number down a bit further.

So, let's break out their subscription Revenue into some sub categories, so 24 of their revenue came from what they call service.

Now it's actually customer service, and this is basically allowing businesses to more effectively deal with their own customers.

So, like Salesforce is customers customer allows them to deal with their own customers that helps them build platforms, they'll mess ways to get a hold of of the company and sort of effectively deal with that process.

Then, when we jump over to sales which, by the way represented about 22 percent of the revenue, this is exactly what it seems like it would be.

This helps a company streamline their sales process.

So everything from managing you know uh potential leads to managing their own customers to anything that could help with a cost a company's sales process.

Well, they might use the services of Salesforce for that product uh for that role.

By the way Salesforce has software, they have their website.

They have the cloud.

They have a lot of different ways to deliver the products customized to each company.

It's a very it's supposed to be a very simplified way to help a company run their business and that actually brings us to our next segment, which is their platform.

Basically, this is the drag and drop customizable platform that makes running a business a bit more effective.

That includes everything from something like marketing, which represented 14 percent a business.

This helps like if you're gonna set up an automated email system for your customers.

Things like that.

Try to sell new Pro try to sell them, maybe upsell them to a different product.

Things like that Salesforce helps do that.

It also helps with data management data represented about 14 of Revenue.

Data management could be things like analyzing data controlling company, or you know, storing company Data customer data things like that.

They do a really good job of being a simple solution for small medium and even some large businesses.

Then their final number is their Professional Services number, but we already talked about that at the start of this whole thing: okay, now, let's jump into some of their numbers, so this first chart is a chart of Revenue going back to 2003 and we can see Revenue, especially over the past decade or so has really ramped up nicely now.

I do want to be clear that the final two years, the green bars the final two years- are analyst estimates for what Revenue will be, but even without those numbers we can see that the numbers have sped up quite nicely.

Then, when we jump over to free cash flow well, we can see that free cash flow is essentially telling the same story.

You know the numbers aren't nearly as high, but the growth rate has been quite impressive.

We're going to come back to this one in a minute when we try to come up with a fair value for salesforce's stock, but in the meantime, let's jump over to a bit more of a unique number, and that number is Goodwill now Goodwill comes about when a company acquires another company.

That is the only way to get Goodwill onto your books and basically the way it's calculated is.

How much is the company worth? Let's say, assets, minus liabilities? How much do you pay on top of that I'm oversimplifying the formula, but it's basically how much extra do you pay for what the company's really worth? Well, we can see there's two points.

I think that are important here.

First, is the jump from 2019 to 2020.

They bought a company I.

Believe you pronounce that tablet.

Tableau I'm, not sure that company they bought that back in 2019 or going into 2020., then in 2021, going into 2022 they bought slack and slack is the important one, but before we dive too far into what that could mean, I want to show you real, quick where you could find these numbers if you're curious so jumping over to the company's most recent balance sheet.

I took just some of the line items from the balance sheet, but the one we're paying attention to is down here under total intangible assets.

So good will is an intangible asset.

It's an intangible asset because technically it's it's a real difficult number to quantify, but that is that does not mean that uh intangible asset in this case is a number that is not calculated.

It is a very strict, very calculated number, with certain rules that are in place, but I think the important part for us to note here is look at the most recent number.

We get about 48 billion dollars on their balance sheet.

This is an asset by the way compare that to how much they have of total assets.

They got about 100 billion, so nearly half of their current assets are their total assets is tied up in Goodwill, so jumping back to the Goodwill chart.

Well, we can see that clearly, Goodwill is playing a very large role in the appearance of the strength of their balance sheet.

Okay, now we want to focus on the acquisition of slack in fiscal year 2022, so they acquired slack Salesforce acquired slack for about 26 billion dollars back in 2021.

Don't forget, 2021.

Is there fiscal year 2022., they close the deal, I want to say mid-year 2021, which is their 2022 numbers.

Well, they paid about 26 billion dollars.

That explains the massive jump that we see in their Goodwill number, but here's the issue when they acquired slack slack had about a billion dollars in Revenue.

A little less than a billion dollars in the year before they their acquisition.

They had about a billion dollars in Revenue, which means that Salesforce paid about 26 times Revenue, which is a massive premium to pay again that's what Goodwill is.

It is to measure what the premium you're paying over that acquisition, but here's the problem with that is that, according to the rules of accounting every year, Goodwill needs to get tested for impairments.

Basically, so what the company has to do is the company looks at it and says: did we pay a reasonable price if they don't, if they at some point, they decide that the company is not contributing the revenue that they were expecting or things like that, it's a bit more complicated than I'm saying, but basically an impairment.

A test for impairment is done each year.

They have to do it and if it's determined that they that they overpaid for that they have to write down Goodwill.

So let's pretend that 26 billion, let's pretend that they shouldn't paid 26 billion.

They should have paid 16 billion just to keep the math simple.

Well, then, we would mean that they overpaid by 10 billion dollars, Goodwill, would fall by 10 billion, but to help keep the balance sheet.

Balanced good will fall by 10 billion and that 10 billion would hit the income statement as a loss.

It would be a one-time loss sure, but still we would see negative profits for that year of whatever the amount is offset by the negative 10 billion dollar hit to that, so I just want to bring that out.

That is not something that they said is happening, but in looking at the numbers and looking at the contribution of slack to the total business, I think that they're way overpaid for the company, maybe I I'm, proven wrong in time, but for now I just want us to be aware that this number could get written down.

This is a lot of money, a lot of assets tied up in Goodwill.

That being said, let's jump over to our fair value: calculation using discounted free cash flow for salesforce's stock.

So basically, what this sheet does is it takes analyst estimates for free cash flow, going out the next few years, discounts that back to today, right now, the Stock's trading at about 198 bucks per share.

Now, personally, I've been using a nine percent required rate of return and using a nine percent required rate of return.

We get a fair value of about 162 dollars per share if you're curious, I'd use nine percent, because it's a premium over AAA corporate bonds.

But if you want to use something more tied specifically to Salesforce well, you might consider using something like weighted average cost of capital.

We can see there that 10 and a half percent, or so weighted average cost Capital that they have well.

The fair value drops all the way down to 127 per share.

Now, if you're still not convinced that that's high enough, you want a higher required return.

Well, you might use something like 11 and a half and if that's the case, the fair value drops down to 115 dollars per share.

If you don't need nine and you want to use less, you can use seven half percent, and in that case the stock would look slightly undervalued, with a fair value of about 212 dollars per share.

Now, for me, on a personal basis, going through the analysis of the Dow 30 companies, Salesforce looks like one of the better growth stocks in the Dow Jones Industrial Average.

But for me it's just way too overvalued.

I, like their business I like where they're going I like the value ads that they bring to other businesses, but I want to see the stock pull down, pull back a decent amount before I.

Consider investing in it personally, but we'll see how the stock shakes out, how the list shakes out, as we finish, going through the Dow Jones Industrial Average.

Now, if you're curious, how we analyze these companies I actually did a video called the eight steps to analyze the stock, where I break out some of my research process.

If you're curious, I'll leave a link right here to that how to watch that video link in the description below and thank you so much for stick with me all the way to the end of the video I really do appreciate it.

Thank you and I'll see in the next video.