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Salesforce.com
Stands Out for the Near Term

Salesforce.com (CRM) was recently highlighted in Value Line’s Market Focus newsletter. The cloud-based software company is a leading provider of on-demand customer relationship management (CRM) services, with about 56,600 employees and a market capitalization that exceeds $225 billion. It has been a component of the Dow Jones Industrial Average since 2020.

At the time of this writing, the company is nearing the completion of its acquisition of Slack Technologies. The $28 billion deal is expected to close in early July. Salesforce’s proposed purchase of Slack received mixed reviews from the investment community, but we think its critics are starting to turn a corner.

Assuming the transaction closes, salesforce will have a more diverse product line and broader platform offerings with enhanced long-term growth prospects.

Elsewhere, the company announced a strategic partnership with Amazon Web Services. The companies aim to unify the CRM platform with the cloud provider to simplify access for customers to rapidly build new applications and connect data.

Management has issued optimistic guidance for the current fiscal year (ends January 31, 2022), which has prompted us to increase our top-line estimate. Our revised revenue call of $26 billion is up $300 million from our previous forecast and at the high end of company guidance. However, we have shaved a dollar off our fiscal 2021 earnings target, to $3.60 a share, owing to elevated operating expenses.

Management's ambitious long-term revenue target may be within reach. Over the back half of this decade, salesforce.com has its sights set on generating revenues in the realm of $50 billion. While seemingly far-fetched (double its current annual run rate), a combination of additional acquisition activity, product development, organic growth, and a healthier macroeconomic backdrop suggests the goal may be attainable.

As for the stock, we continue to believe that it holds some investment appeal even after its recent rise. This equity stands out for the near term. In fact, it holds our Highest (1) rank for Timeliness. Still, CRM’s three- to five-year appreciation potential is limited given the current quotation. Accordingly, this issue is best suited for momentum-oriented accounts.

Editor’s Note: Value Line’s Market Focus newsletter provides unbiased insights on investments, the markets and the global economy. Value Line offers a broad array of investment research services. For details visit www.valueline.com.

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