Salesforce (CRM) has become a strict disciplinarian. From operation execution to financial discipline, the company emphasized the word “discipline” many times in its annual investor conference held on September 23.
Needham analyst Scott Berg left the event with boosted optimism fueled by the operational discipline that is being prioritized by Salesforce’s new leadership.
Moreover, demand for Salesforce’s products and solutions is already being driven by rapid digital transformation across industries, making investors and analysts even more confident about the prospects of the company. This keeps me bullish on the company. (See Salesforce stock charts on TipRanks)
Salesforce also raised its FY22 revenue outlook range to $26.25 billion to $26.35 billion from $26.2 billion to $26.3 billion, giving another reason for investors to rejoice. FY23 revenue guidance of $31.65 billion to $31.80 billion was also initiated by the company.
Notably, the event gave investors what they were rooting for — a 20% operating margin guidance for FY23, based on operational efficiencies rather, than lack of travel and expense spending.
This discussion grabbed most of the spotlight. Berg believes that if realized, the operating margin milestone can provide an impetus to the company’s shares.
Nonetheless, Berg also notices that the expected FY23 operating margin is relatively flat compared with the 20.2% and 20.4% operating margins reported in Q1F22, and Q2F22, respectively.
Moreover, the analyst is also skeptical about the product and sales synergies that Salesforce is expected to realize from Slack. This is because as much as the acquisition was hyped in the recent weeks, management seemed to be slightly evasive about the synergies and integration of Slack. “We felt Slack commentary was light and likely did not answer questions on product and sales synergies with the current CRM product portfolio,” said Berg.
After taking all the key takeaways from the conference into consideration, Berg assigned a Hold rating to Salesforce, revealing that he is cautious about the tepid margin expansion guidance, despite being more encouraged on Salesforce’s shares than he has been in years.
He explained, “recent history on subpar margin expansion keeps us Hold rated until we have better visibility on improvements.”
Wall Street consensus, however, is quite optimistic about Salesforce, with its Strong Buy rating based on 31 Buys, and six Holds. The average Salesforce price target of $317.91 indicates upside potential of 11.3%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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