Cramer’s Investing Club’s new price target for Salesforce (CRM) after earnings

ByAmelia Journalton

Dec 4, 2024 #Business News, #Club Profits, #Investment Strategy, #Jim Cramer, #Latest News: Markets, #Latest News: Technology, #Markets, #Microsoft Corp, #Salesforce Inc, #SAP SE, #Sharkninja Inc, #software, #Technology

Cramer’s Investing Club’s new price target for Salesforce (CRM) after earnings

Shares of Salesforce rose sharply in extended trading on Tuesday after the enterprise software giant reported better-than-expected quarterly revenue and provided solid guidance for the current period. Most importantly, the company showed that Agentforce, its new AI platform, could drive revenue growth in the future. Revenue in the third quarter of fiscal 2025 rose 8% year over year to $9.44 billion, above both the high end of guidance and the $9.35 billion expected by analysts, according to estimates from LSEG. Adjusted earnings per share of $2.41 rose 14% on an annual basis, missing analysts’ forecast of $2.44, LSEG data showed. According to FactSet, adjusted operating margin rose to 33.1% in the three months ended Oct. 31, beating the consensus estimate of 32.27%. Based on generally accepted accounting principles (GAAP), operating margin was 20%, above the expected 18.93%. CRM YTD mountain performance of Salesforce shares in 2024. Conclusion: Salesforce delivered the goods. With the stock up more than 10% in extended trading to $360 per share, we are increasing our price target to $400 from $300. However, due to the recent rally, we maintain our rating of 2, meaning we would wait for declines before adding to the position. Wall Street is willing to overlook Salesforce’s slight miss in adjusted earnings per share due to positive sales performance. Investors know that Salesforce is disciplined on margins, but what the market really wants to see next to push the stock higher is better revenue growth. The quarterly results and outlook showed that the company’s fundamentals remained stable, without any help from one of the most exciting product launches in its history: Agentforce. Salesforce Why we own it: Salesforce is a leading enterprise software tool for companies across all industries, helping employees better communicate with colleagues internally and with their customers. The company’s balance between margin expansion and the potential for faster revenue growth – supported by AI adoption – should result in strong profit growth. Competitors: SAP, Microsoft, HubSpot Last Purchase: December 21, 2022 Launch: June 15, 2018 Agentforce is the company’s platform for AI-powered assistants that can perform tasks and make decisions autonomously. This new product completely changed the history of the stock. When the stock was trading in the low $200s over the summer, there were fears that AI would disrupt Salesforce’s business model. Essentially, the concern was that if companies need fewer workers thanks to AI, companies that sell software licenses per person may see lower demand. Salesforce has debunked this bear thesis in recent months — and especially after its annual Dreamforce conference in September, when it introduced Agentforce in earnest. The platform only became generally available in the final week of Salesforce’s reporting quarter, so it is still too early in the launch cycle to make a significant contribution to critical financial metrics such as current remaining performance obligation, or cRPO. This metric reflects the amount of contracted revenue expected to be recorded over the next 12 months. In contrast, RPO is the total value of contracted revenue. Despite its newness, Agentforce is off to an incredible start that shows great promise for the future. “We have become a digital workforce provider. … This digital work opportunity is incredible and we couldn’t be more excited,” CEO Marc Benioff told Jim Cramer on “Mad Money” Tuesday night. “The results, starting this quarter, already show what will be possible for the future. We closed over 200 Agentforce contracts in the first week of availability.” Benioff said early customers include home appliance maker SharkNinja, London’s Heathrow Airport and recruitment firm Adecco. Benioff added on the earnings call that the Agentforce pipeline “runs into the thousands and includes potential transactions” in the coming quarters. The market had high expectations for Agentforce entering the quarter, as evidenced by Salesforce shares rising more than 30% since Dreamforce in mid-September. What we learned Tuesday night confirms the hype and could be just what the company needs to accelerate revenue growth back to at least 10%, an important level for investors. Quarterly Commentary At a high level, it’s clear that Agentforce and Salesforce’s other AI-related solutions have energized the way business is done. It has allayed concerns about lengthened sales cycles, increased contract review and other software sales buzzwords that have plagued the industry since 2022. In the third quarter, the company said the number of deals valued at more than $1 million using AI tools increased more than triple year-over-year. Executives said the total number of AI deals exceeded 2,000, including the more than 200 Agentforce deals we mentioned earlier. Salesforce’s Data Cloud application – which helps unify data from multiple sources on one platform – could be a key driver for these other contracts. Salesforce refers to its various applications as “clouds,” such as Sales and Service Cloud. Salesforce is seeing momentum in multi-cloud offerings, which is a great sign. The top 25 deals of the quarter averaged more than five clouds each. For investors, multi-application deals are particularly encouraging because they suggest companies will be more loyal customers. “Our multi-cloud strategy is also core to our financial strategy,” CFO Amy Weaver said on the earnings call. “Multi-cloud customers have higher spend, lower churn rates, and drive significant (annual) growth for us every quarter.” The company announced back in August that Weaver would be stepping down as CFO but would remain in that position, until a successor is named. Salesforce recorded a notable profitability milestone in the third quarter: GAAP operating margins reached 20% for the first time in company history, a key step in management’s journey toward continued cost discipline. What to keep an eye on in the coming quarters, however, is the level of investment required to support growth opportunities at Agentforce and Data Cloud. To meet demand for Agentforce, the company plans to hire 1,400 account managers worldwide in the fourth quarter. Salesforce repurchased about $1.2 billion of stock in the August-October quarter, down from $4.3 billion in the previous three-month period. Still, most importantly, the total number of diluted shares fell from 973 million to about 965 million quarter-on-quarter. Salesforce is conducting a buyback program that has more than offset dilution from stock-based compensation, once a point of contention for some investors. Year-over-year, the diluted share count is down 2%, and the company has about $10.6 billion remaining under its $30 billion authorization. Forecast For the fourth fiscal quarter, Salesforce expects revenue of $9.9 billion to $10.1 billion. The midpoint of $10 billion is relatively in line with the consensus estimate of $10.05 billion, according to LSEG. On the bottom line, the company expects adjusted earnings per share of $2.57 to $2.62, which, at a midpoint of about $2.60, missed LSEG’s consensus estimate of $2.66. Salesforce expects its cRPO to rise 9% year over year to an implied $30 billion, roughly in line with the consensus forecast of $30.08 billion, FactSet data showed. As a reminder, Salesforce does not expect Agentforce-related bookings to contribute significantly to cRPO. On a full-year basis, the company increased the low end of its revenue guidance and increased its operating margin and adjusted operating margin guidance. In addition, the forecast for operating cash flow was increased. (Jim Cramer’s Charitable Trust is long CRM. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

Pedestrians near the Salesforce Tower in San Francisco, California, on Wednesday, January 25, 2023.

Marlena Sloss | Bloomberg | Getty Images

Cramer’s Investing Club’s new price target for Salesforce (CRM) after earnings

ByAmelia Journalton

By Amelia Journalton

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