Salesforce Stock Jumps 20% After Earnings. Is It Too Late to Buy? | CRM Stock
Summary
Parkev highlights that Salesforce reported a strong quarter with remaining performance obligations (RPO) increasing to over $66 billion. Parkev notes that revenue growth and RPO growth both stood at 11%, signaling steady momentum and a potential acceleration in organic revenue for the second half of the year. Parkev explains that these results helped alleviate market fears of a 'SaaS apocalypse' where artificial intelligence might have rendered Salesforce's business obsolete.
Parkev discusses the company's valuation, pointing out that the forward price-to-earnings ratio recently dipped to 9, which was far too low for a company with double-digit growth and 20% operating margins. Parkev states that the recent price rerate to 16.2 is more appropriate but still leaves room for growth. Parkev expresses a pet peeve regarding management's use of the word 'updated' for margin guidance, suggesting it often masks a downward revision, though Parkev remains optimistic about the overall business trajectory.
Parkev emphasizes the importance of research and development (R&D) spending, comparing Salesforce's investment strategy to successful models like Apple and Netflix. Parkev argues that when a company has a proven track record of product success, investors should want them to spend more on innovation. Parkev concludes by raising the fair value estimate for Salesforce based on improved cash flow projections.
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Reasoning: Parkev calculates an intrinsic value of $290, which suggests a 15% upside from the current market price of $252. Parkev argues that the forward P/E of 16.2 remains a buying opportunity as Salesforce reduces risks related to AI disruption. Parkev also points out that while AI and data products are a small part of the total business, they show positive momentum with $4 billion in annual recurring revenue.
Reasoning: Parkev refers to The Trade Desk's recent performance as a disaster because revenue growth dropped significantly to 3%. Parkev explains that the company is suffering from increased competition from tech giants like Google and Amazon. Parkev uses this example to show the kind of revenue deceleration risk that Salesforce has successfully managed to avoid.
Reasoning: Parkev uses Apple as a benchmark for excellence in research and development, noting how its product cycles lead to billions in sales. Parkev believes that Apple has earned investor trust through decades of market leadership with products like the iPhone. Parkev states that high investment in R&D is desirable for companies with Apple's track record of success.