Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Commentary

Is Salesforce (CRM) making money?

Salesforce (CRM) is a profitable software company that most people are unfamiliar with.

Most investors are unfamiliar with Salesforce because it specializes in customer relationship management (CRM) solutions. To explain, CRM software connects businesses with customers.

Moreover, Salesforce pioneered the concept of Software as a Service (Saas). In detail, a SaaS solution provides both software and a service. For example, an invoicing SaaS offers both invoices and the program that creates them. Thus, a good way to think of a SaaS is an app for business computers.

Is Salesforce (CRM) a value investment?

Hence, Salesforce has characteristics of a value investment. For instance, it makes a widely-used product that is but not sexy.

In fact, the obscurity adds value to Salesforce because a lot of investors are unfamiliar with it. Yet those who buy and use its products respect its product.

Notably, over 100,000 companies worldwide use Salesforce’s CRM products. More importantly, Salesforce’s business is growing at an impressive rate.

For instance, Salesforce’s revenues grew at a rate of 27.32% during 3rd Quarter 2018. That shows there is a significant demand for its products.

Does Salesforce (CRM) Make Money?

Salesforce is making money off of its CRM and SaaS solutions. For example, it recorded a gross profit of $2.432 billion on revenues of $3.81 billion for 3rd Quarter 2018.

In addition, Salesforce recorded an operating income of $115 million and a net income of $299 million for 3rd Quarter 2018. Thus, the net income from Salesforce’s licenses exceeds its operating income. Hence, I think Salesforce makes money without spending resources.

Importantly, Salesforce’s business is generating significant amounts of cash. For instance the company recorded an operating cash flow of $458 million, a financing cash flow of $589 million, and a free cash flow of $288 million on 31 July 2018.

Salesforce (CRM) is a Cash Rich Company

Additionally, Salesforce reported having a lot of money in the bank on 31 July 2018.

In detail Salesforce recorded $2.319 billion in cash and equivalents, $1.108 billion in short-term investments. Thus Salesforce had $3.427 billion in cash at the end of 3rd Quarter 2018.

Impressively, Salesforce’s stash of cash has been far bigger in the recent past. In fact, Salesforce had $7.159 billion in cash and short-term investments on April 30, 2018.

As a result, Salesforce meets one important criterion for a value investment; it is a cash-rich company. For this reason, many people will wonder if Salesforce is a good dividend stock.

Is Salesforce (CRM) a Good Dividend Stock?

Unfortunately, Salesforce does not pay a dividend. I think’s a shame because CRM could be a great dividend stock.

Consequently,  the market overpriced Salesforce (CRM)  at $122.03 a share on 23 November 2018 without a dividend. Consequently, there is no reason for income or value investors to own Salesforce.

Conversely, there is a lot of growth potential at Salesforce. Accordingly, Salesforce could be an effective growth stock.

The Bright Future at Salesforce (CRM)

Salesforce has a bright future because of the dramatic growth of the cloud and the relentless spread of apps. Salesforce is well-positioned to take advantage of new markets and business opportunities throughout the globe.

For example, Salesforce offers cloud-based platforms that perform basic business functions. For instance, Salesforce claims to offer the #1 marketing and sales platforms.

Moreover, customers can those platforms from anywhere via a simple app. Therefore, Salesforce can sell its products anywhere there is a decent Wi-Fi connection.

New Opportunities for Salesforce (CRM)

Under those circumstances, Salesforce’s biggest opportunities will be in developing markets like India, the Middle East, Latin America, and Africa. Such markets are an opportunity for Salesforce because there is little existing infrastructure to support business there.

To explain, an entrepreneur in Uganda cannot run down to a bank or a consultant. Yet she can access the cloud via a phone or a tablet. Hence that entrepreneur is a potential salesforce customer.

Salesforce (CRM) and Cloud 2.0

In the long run, the development of what I call Cloud 2.0 will create some huge potential markets for Salesforce.

To enumerate, Cloud 2.0 will consist of new technologies like the blockchain, sidechain, cryptocurrency and apps. An excellent example of Cloud 2.0 is the distributed ledger technology, The Hyperledger Project is creating for the Ethereum blockchain. Hyperledger’s goal is to create a wide variety of tools or apps for business to use on the blockchain.

Other examples of Cloud 2.0 include all the Ethereum platforms being built for specific business purposes. For Aitheon’s digital ecosystem for automation and the Internet Of Things.

How Cloud 2.0 will power future growth at Salesforce (CRM)

Cloud 2.0 will drive future growth at Salesforce in two important ways.

First Cloud 2.0 will provide many new distribution channels for Salesforce’s products. For example, businesspeople in developing nations could use a sidechain and cryptocurrency to pay for Salesforce’s SaaS solutions.

Additionally sidechains will provide a distribution mechanism for decentralized applications (DApps). In detail, a DApp is a SaaS solution built for the blockchain or a sidechain.

A business model being developed by platform like MOAC (MOAC) will use sidechains to distribute DApps to people all over the world. I think solutions like MOAC’s sidechains could take Salesforce’s cloud-based solutions to company all over the world. Hence, Salesforce will see its markets expand dramatically in the years ahead.

How GitHub Threatens Salesforce’s (CRM) Future

On the other hand, Salesforce will face a vast amount of competition in the years ahead. For example, a software developer in India can distribute his creations through open-sourced markets like GitHub.

Thus better and cheaper alternatives to Salesforce products could reach a mass market overnight. Notably, Microsoft (NASDAQ: MSFT) owns GitHub, which gives its 31 million developers potential access to Windows.

Moreover, GitHub claims the number of organizations using its web-based SaaS marketplace grew by 40% in the past year. For example there are now 2.1 million organizations using GitHub’s 96 million cloud-based software repositories.

Impressively, those organizations have made over 200 million pull requests for SaaS and other apps. To clarify a pull request is a demand for a product at GitHub

Under these circumstances, Microsoft and GitHub are Salesforce’s biggest and most dangerous competitors. Markedly, the GitHub threat is growing dramatically. In particular, GitHub claims more new developers’ joined its platform in 2018 than in the previous six years combined.

Why Microsoft is a Better Stock than Salesforce (CRM)

In the final analysis, Microsoft (NASDAQ: MSFT) not Salesforce is the stock to buy to cash in on cloud-based CRM. I think Microsoft is in a position undercut and wipeout Salesforce’s business via GitHub

Impressively, Microsoft is scheduling a cash dividend of 46¢ on 13 December 2018. Furthermore, Microsoft stock is cheaper than Salesforce. For example, Microsoft shares were trading at $103.07 on 23 November 2018.

There is no reason to buy Salesforce because Microsoft is a better and cheaper stock. I advise investors to stay away from Salesforce because the market overprices it, pays no dividend, and has a questionable future.




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