Salesforce.com - Financial Analysis Presentation
- Arend Pryor
- Dec 20, 2021
- 11 min read
Updated: Jan 3, 2022
Author: Arend Pryor | Created: 07/19/2021
Details: Sharing content created as part of pursuing my MBA degree
Assignment Details: Select a Fortune 500 company or one you are familiar with. Consider pharmaceuticals, computer hardware, retail, or automotive industries for your selection. If you choose a company that is not in the Fortune 500, ensure that enough financial information and key performance indicator results are available to complete the assignment.
Imagine your manager has asked you to help with a presentation on the company’s financial performance at the company’s annual meeting.
Research financial information and key performance indicators for the company.
Create a 10- to 16-slide presentation for investors to assess the company’s financial growth and sustainability. Use speaker notes to convey the details you would give if you were presenting.
Include the following in your presentation:
Identify key performance indicators for the company you selected, including the following.
The company and its ticker symbol
Cash flow from operations
Price-to-earnings ratio
Stock dividends and the yield, if any
Earnings per share ratio
Revenue estimates for the next 12 months
Revenue from the previous 3 years
Statement of cash flows and net cash from operating, investing, and financing activities over the past 3 years
Average trade volume
Current stock price, 52-week high, and 1-year estimated stock price
Analysts’ recommendations for the stock (buy, sell, hold)
Market cap for the company
Relate the stock price to the price-to-earnings ratio.
Explain the market capitalization and what it means to the investor.
Evaluate trends in stock price, dividend payout, and total stockholders’ equity. Relate recent events or market conditions to the trends you identified.
Determine, based on your analysis, whether you think the organization is going to meet its financial goals and the outlook for growth and sustainability, and explain why you recommend this stock for purchase
Hi everyone and thank you for joining us today. My name is Arend Pryor and I will be taking you through today's presentation.
Today we are going to be discussing the financial performance of Salesforce.com as part of giving you a view of how the company has performed historically and a look forward into the future. This will also include a recommendation on whether you should invest.
Starting with an overview of the company, we will take a look at who they are and what they do
Next, details for the following key performance indicators will be reviewed as well as a brief overview of what they mean. This will include:
Cash flow from operations
Price-to-earnings ratio
Stock dividends
Earnings per share ratio
Revenue estimates for the next 12 months
Revenue from the previous 3 years
Statement of cash flows for the past 3 years
Average trade volume
Current stock price, 52-week high, and 1-year estimated stock price
Analysts’ recommendations
Market cap for the company
Next we plan to relate the stock price to the price-to-earnings ratio
After that we will discuss market capitalization and what it means to investors
We will take a look at trends in the stock price and total stockholders’ equity
Also important to mention, details will be provided as to whether the organization is going to meet its financial goals. There will also be information about the outlook for future growth and sustainability, which will also include a recommendation as to whether this stock is a good candidate for purchase
Before concluding the presentation, we will discuss any questions you might have regarding the information covered today
Lastly, for those who are interested in reviewing references showing where today’s information was obtained, the final slides in the presentation will include this information.
Let’s go ahead and get started
Kicking things off, the following section will provide a brief overview of the company and what they do, prior to diving into the financials
Company overview: Salesforce.com, was started in 1999 at the tail end of the dot com era and has been making a name for itself ever since. The company’s flagship product is a cloud-based Customer Relationship Management (CRM) tool known as Customer 360, which helps businesses identify, manage, and develop connections with current and potential customers (Mann, 2021). The company also offers a variety of additional cloud based products that aid companies with managing sales, service, commerce and even an artificial intelligence product that improves integration. Company revenue has grown by 51% over the last 20 years and hit the $21 billion dollar mark as of 2021, which fall under two streams of revenue. The first being subscription and support revenues and the second encompasses professional services and all other revenues (Dean, 2021).
Ticker Symbol: The company’s ticker symbol, for those that need it, is CRM
Next up, we will be reviewing the following key performance indicators for Salesforce.
If you have any questions along the way, please feel free to ask.
The first item we will be reviewing is the cash flow statement for Salesforce, which focuses on the operating activities section. This gives us a view of how cash moves including the inflows from normal operations (Schmidt, 2021).
Looking at the values shown for Net Operating Cash Flow from 2017 up to 2021, this number has grown from 2.16 billion to its current value of 5.63 billion, an increase of 161%.
Cash Flow Statement Chart (Salesforce.Com Cash Flow Statement, 2021)
A company’s price to earnings ratio, better known as the P/E ratio, is a view of how much a company’s earnings cost investors. This is calculated using the company’s Market price per share divided by earnings per share.
Using the closing market price of $238.43 as of today, July 16th, 2021, and dividing this by the company’s earnings per share (or EPS) of $4.74, we get a P/E Ratio of 50.3.
This tells us that in order to buy this stock, you would need to pay 50.3 times the value of earnings per share.
As a comparison, Hubspot, one of Salesforce.com’s publicly traded competitors, shows N/A as their P/E ratio due to a negative earnings per share value of -1.99
Salesforce - Market Data chart 07/16/2021 (Yahoo finance, 2021b).
For some, one of the benefits of owning stock are the dividends they pay out, especially during those times when the market takes a dip for an extended period of time.
Despite the continued growth of Salesforce, they do not currently pay out dividends. The thought behind this is that companies go through several phases of maturity before reaching a point of sustainability and making excess revenues and Salesforce has not yet reached this point (Ciura, 2020).
Next up we look at earnings per share, which tells us the dollar amount the company earned per share of common stock outstanding.
For 2021, we see that Salesforce.com had a Net Income of 4.072 billion and 930 million diluted shares outstanding, which gives us an EPS of $4.38. Based on the historical values of EPS shown since 2017, this value is well above what would be expected.
Net Income Chart (WSJ Market, 2021a)
Let’s now take a look at revenue estimates for the next 12 months and a bit beyond.
As we saw in the previous slide, the most recent Income Statement for Salesforce reported a Net Income of 4.072 billion dollars. Looking at the snapshot from Yahoo Finance shown here, we see that based on estimates from approximately 30 or more analysts, the average revenue estimates for salesforce will continue to increase quarter-by-quarter and hit $26 billion dollars for 2022 and will jump to $31.1 billion in 2023.
Forecast Chart (Yahoo Finance, 2021b)
As a comparison to the previous slide, we will now look at historical revenue reported by Salesforce for the last three years.
Starting with 2018, we see annual reported revenue of $10.5 billion, which then moved up to $13.3 billion. Most recently, the company reported a total revenue of $17.1 billion in 2020, which represents a 62% increase since 2018.
Historical Revenue Charts/Info: (Zacks Investment Research, Inc., 2021)
Shown here are the statement of cash flows for Salesforce, which includes net cash from operating, investing, and financing activities for the current year as well as for the previous four years.
Operating Activities: Starting with the operating activities section, which tells us how much cash flow Salesforce had from operations, we see they had $2.16 billion in Net Operating Cash Flow as of 2017 and this value has steadily increased year-by-year with its biggest jump of 49% in 2020 when this value reached $5.06 billion. As of 2021, this value increased by 11%, bringing it to $5.63 billion.
Investing Activities: Moving down to the investment activities section, we can see the impact on cash flows as a result of money spent on capital expenditures over the period shown. For 2019, we see one of the biggest impacts on this value when compared to the year before as the amounts invested increased by 164%. This number decreased for 2020 as $2.98 billion and then increased slightly for 2021 at $3.97 billion.
Financing Activities: Looking now at the financing activities section for this time period, the numbers for Net Financing Cash Flow alternate from either moving up or down. This is due to a combination of selling common and preferred stock and changes in short and long term debt. One of the most notable changes was in 2019 where the company reported a Net Financing Cash Flow of $2.01 billion, its largest during the period shown, which was a result of a net reduction of debt in the amount of $1.31 billion. For the current year of 2021, we see this value is sitting at $364 million, a large jump from the year before when this number was sitting at a negative value of (564) million.
Last but not least, I wanted to also cover the historical figures for free cash flow, which tells us how much cash the company is able to generate for its investors, once capital expenditure obligations are paid. With the exception of 2019, where this value experienced a decrease from the year before, free cash flow has progressively increased to its current value of $4.92 billion, an overall increase of 190% since 2017 (Brealey et al., 2019).
Statement of Cash Flows table (WSJ Market, 2021b)
In this slide we are going to review the average trade volume of Salesforce common stock as calculated by Yahoo Finance, which uses the average from the last three months. Based on Yahoo’s calculations, we see the average trade volume for Salesforce is 5.71 million shares of stock traded
Salesforce - Market Data chart 07/16/2021 (Yahoo finance, 2021b)
In this next slide, we focus on the stock price of the company.
The most recent price of salesforce.com stock as of July 16th, 2021 was $237.58, which is below the company’s 52 week high of $284.50, which hit this mark back in September of 2020. The one year estimated stock price, shown in the lower right of the screenshot, is $278.66.
Salesforce - Market Data chart as of 07/16/2021 (Yahoo finance, 2021b).
Based on input from market analysts on Yahoo Finance, as shown by the graphics you see here, Salesforce.com’s stock is rated as a 1.9 by the majority, meaning analysts rate it as a “buy.”
As an interesting point, if you look at the green sections of the “recommendation trends” graphic, we see that as of July, while 56% of analysts rate the stock as a buy, as denoted by the light green color, 36% of analysts still rated the stock as a strong buy, shown by the dark green area. The months prior had similar recommendations. This is a good indication that the stock is still somewhat undervalued and would be a good investment.
Salesforce – Buy, Sell, Hold recommendations as of 07/16/2021 (Yahoo finance, 2021c).
Looking back at the stock summary data for Salesforce as of July 16th, 2021, we turn our attention to the Market Cap value in the upper-right, which was calculated at $220.786 billion. This is the dollar value of the company’s outstanding shares of stock, which may not be surprising to some as the company is considered a large-cap technology stock.
Salesforce - Market Data chart as of 07/16/2021 (Yahoo finance, 2021b).
In this next section, we will cover some additional analysis around stock price versus the P/E ratio of the company, take a look at market cap as it relates to investors, evaluate stock price and stockholder’s equity, and close things out with an outlook for the future and a recommendation on whether to invest.
Let's now compare Salesforce.com’s stock price with their P/E Ratio. The best way to do this would be to include ratios from others within their industry. However, as previously mentioned, many of their competitors are not publicly traded. So in light of this, we will be looking at other companies who operate in the software industry.
Salesforce.com’s stock price as of July 16th, 2021 was $237.58 and they had a P/E Ratio of 50.27. This ratio is definitely on the high side, however, this is less surprising for a technology company that’s experiencing rapid growth. The ratio combined with the high stock price tells us that investors are willing to throw their hat in the ring and purchase shares at this price (Murphy, 2021).
In the table shown here, we see a P/E Ratio for salesforce of 49.88, which is as of the end of 2020 and not far off from their current value. The P/E ratios of the other organizations on this list, most of which are large established companies, show ratios that fall above and below the ratio shown for salesforce. If we take the average of these P/E ratios, we get a value of 40.32, which puts Salesforce a good distance above the average, which indicates the company is ahead of the game within their industry.
Overview Showing P/E Ratios of related Companies: (Overview of Market Industries: Valuation and Profitability, 2020)
We talked a bit about the market capitalization of Salesforce earlier and how they are ranked as a large-cap company, based on their market cap of 220.786 billion. From an investor’s perspective, this tells us that the company has risen through the ranks of the lower market caps and is at a stage where they are less prone to volatility. This level of capitalization can also indicate that Salesforce should be considered as a long-term investment, one that’s more conservative than small or midcap stock investments and offers less risk in exchange for less aggressive growth potential.
A few additional advantages of large cap companies are in their ability to secure more advantageous terms for financing and some will typically have gotten to this level by benefiting from their competitive advantage (Fernando, 2021).
Using stock price and total stockholders’ equity as our guide, let’s look for a minute at the direction salesforce is heading based on historical data for these items. Dividends would also be considered here, however, as mentioned earlier, the company does not currently pay them out.
Looking at a summary of stock price data for the last five years as shown in the tables here, the value as of August 1st, 2016 was $79.42 and as previously mentioned, the current price closed at $237.58 as of July 16th, 2021, which is a 200% increase in price over that five year period. Taking this a step further, calculating the average annual growth rate of the stock gives us a value of 29%, which is a trend that no doubt makes investors as well as the company very pleased.
Repeating this same process for stockholders’ equity, the growth from 2016 to 2021 represents a 729% increase, which is huge, even for a technology company. Taking the average yearly growth and calculating the average overall gives us 56%. Another calculation that has led to pleased investors.
Stock Data: (Yahoo Finance, 2016–2021)
Stockholders’ equity data: (Dybek, 2016–2021)
For those that are still hanging in there after covering all this information, we have now reached the payoff, or as I like to call it, the recommendation as to whether you should purchase stock in Salesforce.com.
Based on the current, future and historical data we reviewed today, I currently have no reason to believe the company will not continue to increase their revenues, stock price, and earnings per share over the next two to five years. However, the rate at which this occurs should continue at a steady pace as it has done in the past. The fact that the company routinely surpasses analysts’ estimates for quarterly revenue and earnings per share is also a positive sign.
Innovation is an area that plays a key role in future growth and competitive advantage and the company is currently investing in future technologies such as artificial intelligence to pave the way for increased revenues for the future.
The company has also been known for acquisitions that provide increased benefits to their platform and their customers, also resulting in increased revenues. An example of this was the acquisition of MuleSoft in 2018 for $6.5 billion in cash and stock, which added the ability to automate the integration process and increase application development time (Krause, 2021).
In closing, my recommendation would be to add Salesforce.com as one of your core investment stocks that you hang onto for the long-term.
This final section takes us into the home stretch of the presentation where we will take questions and then end with a quick look at references to show where the data shared today was obtained
Before concluding the presentation, I wanted to thank everyone for your time and attention in covering the elements associated with today’s review of Salesforce.com and the recommendation for investing. I welcome any questions you may have before we conclude
Included in the next four slides is the reference information for this presentation showing where the information was obtained
Thanks again for attending and have a great day.
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