Hey everyone.

The company we'll dive into this week is Saleforce Inc. (NYSE: CRM)

On March 2, 2023, Salesforce shares jumped after the company reported strong fourth-quarter earnings and issued a better-than-expected outlook for FY2024.

However, the company's sales growth slowed further.

Is Salesforce a growth or value stock?

01 Business Model

Salesforce is a cloud-based customer relationship management (CRM) software company.

Founded in 1999, the software maker pioneered the "software as a service," or SaaS model.

The model allows users to access software via the Internet without the need to install it on their own devices. Customers pay a recurring fee rather than buy one-time software licenses to access its services.

Salesforce generates most of its revenue from its cloud-based CRM services, such as sales, service, marketing and commerce, and Platform. These subscription-based services are available on its platform called Customer 360.

The company also offers professional services like consulting, training, and support.

In FY23, Salesforce's total revenue reached US$31.4 billion, bringing in US$7.1 billion operating cash flow.

Here's Salesforce's revenue breakdown for FY 2023:

02 Strength

● Salesforce ranks #1 in CRM Market

Salesforce leads the global CRM market.

According to a report from IDC, the company has been ranked the world's #1 CRM platform for nine consecutive years.

By 2021, Salesforce has grabbed a 23.8% market share, well above SAP's 5.4%, Microsoft's 5.3%, Oracle's 5.1%, and Adobe's 3.8%.

03 Growth Potential

● Salesforce Expects US$290 Billion Market Opportunity in 2026

Salesforce has been expanding rapidly over the last decade. Its revenue saw a substantial rise from a mere US$3.05 billion in FY2013 to a staggering US$31.35 billion in FY2023.

The software maker drives its business both organically and inorganically (through mergers and acquisitions).

Organic growth derives from the expanding CRM market and its product innovations.

With the global CRM Market size projected to reach US$145.79 billion in 2029 according to Fortune Business Insights, Salesforce has been innovating its products in order to attract more customers.  

On the other hand, Salesforce has invested in and acquired other companies to fuel its growth. Salesforce made a bundle of acquisitions over the years, including buying Slack for US$27.7 billion, Tableau for US$15.7 billion, MuleSoft for US$6.5 billion, and others.

These acquisitions helped expand the company's product portfolio and grow its ecosystem.

The company now expects the total addressable market (TAM) size to reach US$290 billion in 2026, with a CAGR of 13%.

04 Financials

● Growth slows but profitability strengthens

Despite the huge market potential, Salesforce is not growing as fast as it used to.

Quarterly sales growth slowed to 14% year over year in Q4 FY23, and the company expects it will go lower to 10% in Q1 FY24.

This slowdown in sales growth might be partly attributed to the software maker's shifted focus to profitability.

Salesforce said on January 4 that it would cut 10% of its workforce and reduce office space as part of a restructuring plan, which may lead to about US$1.4 billion to US$2.1 billion in cost cuts.

Non-GAAP quarterly operating margin increased to 29.2% in Q4 FY23, compared to 15% a year ago.

Moving forward, Salesforce sees a 27% adjusted operating margin for the full 2024 fiscal year, meaning the company is two years ahead of its profitability target of 25% in FY26.

05 Risk

● Currency Headwinds

Salesforce's exposure to exchange rate fluctuations might affect its financial performance and cash flows.

The company operates in three regions: the Americas, Europe, and Asia Pacific. The expanding global scope of its business increases the company's exposure to exchange rate volatility.