Does Salesforce have a good valuation going forward?

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BY : Diego GutiérrezFebruary Thu, 2019

The CRM software market is booming, and even more so the business model based on offering this service in the cloud, being able to access the service from any location.

Since 2014 the annual growth of the sector has been 23% p.a. Will this growth continue to be viable in the future, how does this growth affect the biggest player in the industry? To find out, we decided to take a closer look at Salesforce.

Salesforce Financial Analysis

From our specialisation in Business Valuationwe have summarised the Salesforce financial highlights to be able to analyse the projection they have had in recent years and how the world's leading Cloud CRM company has evolved.

financial analysis

What is most striking is the the company's lack of efficiency in generating cash flow. The EBITDA/Sales ratio is very low, this is due to the large cost (almost 40% of revenues) that the company spends on marketing and sales promotion and R&D development which takes another 15% of total revenues.

This is why, although EBITDA may appear relatively small, it is largely due to the company's efforts to maintain a high rate of growth and to continue to offer innovative services to customers.

At a glance, you can see the large growth in fixed assets in 2017, which is due to the large number of purchase of companies and the amount of these it carried out both to increase the functionality of the company, to increase business lines and to acquire external talent to foster innovation within the company itself.

To carry out these operations, it had to to get into debt, to carry out a capital increase and reduce cash flow available to the company. Since then, this situation began to reverse in 2017, reducing the company's net financial debt and focusing on maintaining a policy of acquisitions of small and medium-sized companies. This policy has changed again in 2018 with the acquisitions of MuleSoft and Datorama, companies focused on connectivity and artificial intelligence.

Total sales have managed to grow in a very similar way to the increases in the fixed assets that support them, although in 2017, this growth was not in line.

In terms of turnover, we can see that subscription and support revenues continue to be the company's core revenues, with a commensurate growth in the volume of professional services. It is important to note that the expectations set by the company's CEO are very high, with the company wanting to double its current turnover by 2020by 20%, seeking to improve cash generation efficiency by 20%.

On the positive side, it can be seen that there has been a reduction in operating working capitalThis has enabled Salesforce The company has a larger amount of available cash with which it has been repaying part of its debt, and it is possible that these cash surpluses will be used again for new acquisitions in the near future.

Looking at the ROE we can see that it is very smalldue to the size of the company's equity and the low gross margin. Even so, it should be noted that since 2016 it has managed to turn a profit, with the figure for 2017 being so large due to tax deductions obtained in previous years and applied in that year.


Salesforce's share price has been growing very steadily, in much the same way as revenue growth and subscriber growth.The growth in share price is also due to the loyalty of Salesforce's customers. The growth of the quote is also due to the loyalty of Salesforce customers, who tend to maintain long ties with the company, meaning that an increase in subscribers almost guarantees prolonged growth in the future, i.e. revenues are highly recurring.

salesforce quotes

This long-term link is a consequence of a dominant position in the industry. Because of the need to have a large size to be able to compete realistically, a number of competitors are not able to offer a competitive price that includes all the services that Salesforce offers, or do not have sufficient margin to continue to invest in R&D. This makes Salesforce is a competitor that globally has few real competitors.The company's share price and valuation have been boosted.

The company's EPS currently stands at $0.18 per shareThis could be the company's biggest challenge in the medium term, not being able to improve the company's efficiency even as it continues to grow in size and turnover, which would mean that by not covering the company's cost of capital the share price would tend to fall.


The Salesforce's growth over the next few years seems undeniable. in the cloud CRM sector. With the new acquisitions, the company intends to grow and enter other high-growth sectors and to give new applications to the management of all the data it obtains from its core business.

In addition, due to the recurrence of the business income it can be assumed that the stability of the company will be a major asset to maintain its current revenues and possibly its share price in the short term.. Further growth could lead to greater efficiencies in the future and the possibility that revenues could grow more than marketing costs, due to increased global brand awareness. Therefore, the company could achieve greater profitability and thus making profitable the great growth of the company in the last 5 years.

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