Salesforce (CRM) is thriving in the coronavirus epidemic. For instance, Stockrow estimates Salesforce.com had a revenue growth rate of 28.87% in the quarter ending on 31 July 2020.
Additionally, Salesforce’s quarterly revenues rose from $4.865 billion on 30 April 2020 to $5.151 billion 31 July 2020. Moreover, Salesforce’s quarterly common net income rose from -$248 million on 31 January 2020 to $99 million on 30 April 2020 to $2.65 billion on 31 July 2020.
Similarly, Salesforce’s quarterly operating income rose from -$36 million on 31 January 2020 to -$140 million on 30 April 2020 to $178 million on 31 July 2020. Impressively, Salesforce.com (NYSE: CRM) reported a quarterly gross profit of $3.84 billion on 31 July 2020.
Why Salesforce (CRM) wants Snowflake
Salesforce.com Inc. (CRM) and Berkshire Hathaway (NYSE: BRK.B) each plan to invest $250 million in Snowflake’s initial public offering (IPO).
Salesforce wants to buy 3.125 million Snowflake shares at $80 a share, Pulse 2.0 claims. Salesforce wants Snowflake because Snowflake operates a data platform that makes it easy for businesses to run applications on the cloud. Snowflake claims to process 515 million data uploads each day.
I think Salesforce wants Snowlake because Snowflake’s tech could make it easier for employees to use Salesforce’s Customer Relationship Management (CRM) software while working from home. Snowflake’s businesses include a data marketplace that allows customers to access third-party data from home. Salesforce users could access marketing and customer data from home using Snowflake’s data marketplace.
Thus, Salesforce is expanding its business to counter the effects of coronavirus and the new stay-at-home economy. I think Salesforce wants to cash in on coronavirus by creating a CRM for the work-from-home ecosystem.
How Much Cash is Salesforce Generating?
This expansion could be good news for investors because Salesforce has a history of generating cash from its business.
Salesforce.com reported a quarterly operating cash flow of $429 million on 31 July 2020. That quarterly operating cash flow fell from $1.859 billion on 30 April 2020. However, Salesforce’s ending quarterly cash flow fell from $5.722 billion on 30 April to –$1.72 billion on 31 July.
However, Salesforce appears to be borrowing more. For instance, Salesforce reported a quarterly financing cash flow of $125 million on 31 January 2020. The quarterly financing cash flow rose to $209 million on 30 April 2020 to $441 million on 31 January 2020.
However, Salesforce is still a cash-rich company. For instance, Salesforce reported $9.283 billion in cash and short-term investments on 31 July 2020. That cash grew from $7.947 billion on 31 January 2020 to $9.802 billion on 30 April 2020.
Salesforce had $57.78 billion in total assets on 31 July 2020. Those assets grew from $53.523 billion on 30 April 2020 and $55.126 billion on 31 January 2020. Thus, Salesforce’s value is growing.
Does Mr. Market Overvalue Salesforce?
In 2020, Salesforce’s share value grew from $166.99 on 2 January 2020 to $243.10 on 11 September and $250.60 on 16 September 2020. Salesforce hit a high of $281.25 on 1 September 2020.
Thus, Salesforce is adding share value and cash in a pandemic. However, I think Mr. Market overvalues Salesforce because it pays no dividend.
In the final analysis, I consider Salesforce.com (CRM) a solid value investment that Mr. Market overprices. You could pay too much for Salesforce, but I do not think you will lose money you invest in Salesforce.
If you are seeking a value investment in tech and software, Salesforce is worth investigating. However, Salesforce is not an equity for those seeking cheap stocks. Instead, Saelsforce could be a good stock that is worth paying extra for. However, I advise investors not to buy Salesforce, until it pays a dividend.
Originally published at https://marketmadhouse.com on September 16, 2020.