The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.
Thoughts On Current Market Conditions
We have seen some unprecedented activities in the market for the past couple of weeks. I have been getting a lot of questions about my thoughts on all these meme stocks and whether or not one should invest in them. My personal investment philosophy does not align with the prevalent activities in the market. My primary goal is to make long-term investments in companies that are growing and will produce a great deal of value for at least the next 5-10 years. I want to leverage the power of compounding to see significant growth over the next few decades.
“Money makes money. And the money that money makes, makes money.”
— Ben Franklin
With that being said, I am still someone that enjoys a little bit of thrill 🚀 and adrenaline. So I allocate a 1-2% of my portfolio to YOLO here and there. I bought GME, AMC, BB, NOK and have since last morning closed my positions in GME and AMC 📄 🙌 for ~3-400% profit. I may or may not enter these positions again based on market sentiment and conditions.
Salesforce (CRM) ☁️💻
In late November 2020 Salesforce announced that they were acquiring Slack for $27.7B. This caused a big sell-off because investors thought Salesforce over-paid for Slack, and that it may not provide any meaningful value. Salesforce stock dropped around 8% because of this. The thing is that the same thing happened when Salesforce acquired Tableau in 2019. Wall Street questioned the necessity of that deal and there was a sell-off with CRM dropping ~8%. Salesforce stock has gone up 52% since then.
Salesforce is a company that has grown successfully in the past two decades by acquiring companies and offering them to their customers as part of their software bundles. Slack is the primary communications application for thousands of companies. A lot of these companies are very young and growing. I think Salesforce is in a great position to capitalize on that and offer their main products and services to these companies. The fact that all these products and services will work together smoothly will be a great incentive for customers to go with Salesforce. It simplifies a lot of things like integrations, data-sharing, billing, etc. I am very confident in Marc Benioff’s (CEO) decision to acquire Slack and the vision he has to scale Salesforce’s product offerings to more and more customers. Salesforce has some of the best business development talent in the industry and they will integrate Slack very well into their current offerings.
Salesforce Financials 💸
Given the big size of Salesforce as a company, it’s growing at an incredible rate. In the Third Quarter Fiscal 2021 Results they reported a revenue of $5.42 Billion, up 20% Year-Over-Year.
Marc Benioff said that:
“No other major enterprise software company is growing at this rate”.
As the world becomes more digital, mainly accelerated by the COVID-19 pandemic, Salesforce will continue to grow double digits in the foreseeable future.
Because Salesforce’s revenue is recurring, they enjoy high margins. For 2020, their gross margins were a whopping 74.4% . As a comparison Apple has a gross margin of ~38%.
Gross profit / Total Revenues = 11,476/15,435 = 74.4%
Although, their Income from operations was only $262M, we can see that they reinvested most of their income into R&D and Marketing & sales. I personally consider those as great investments which will play dividends in the long term. The company is heavily reinvesting into its growth and prioritizing the long term play rather than short term profits.
Salesforce Future 🔮
Given how successfully Salesforce has integrated prior acquisitions, their YoY revenue growth, and their heavy investments into their future, I think Salesforce stock will climb back up to its all time highs and continue to gain more market share. The recent price drop associated with the Slack purchase creates a great opportunity to buy CRM at a discount with a great upside potential.
The sell-off associated with Slack was an overreaction. As Slack’s customers continue to grow their businesses they will be looking for a CRM to improve relationships with their customers. That’s where Salesforce will come in and offer their product bundles. This increase in new business will not only increase Salesforce’s revenues but it will further solidify Salesforce’s dominance in the CRM space.
The author of this post owns shares of Salesforce.com, Inc.