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Salesforce Plummets on Weak Revenue Guidance
- Authors
- Name
- Solo FIRE
CRM is down 20% today because the company's Q2 revenue guidance (9.2-9.25 billion) missed expectation of 9.35 billion. The company delivered 6.08 billion of free cash flow (FCF), a significant 43% YoY increase, and 11% revenue increase, indicating a rapid margin expansion. The estimated value of the stock is $292 per share using the following conservative DCF conditions, indicating a 16% CAGR:
- Latest TTM FCF of 11.38 billion
- FCF growth rate of 10% (5YR avg is 27%)
- Future price to FCF ratio of 25 (5YR avg is 38)
- 0 share dilution as the company started buy back shares
- Discount rate of 10%
After today's sell off, the company is trading at 18.4 price to FCF ratio, which looks cheap considering the company is still growing its revenue by 8-9% and projected free cash flow growth of 20% annually.
I believe the market over reacted about the company's revenue slowdown in the short term, I think this won't affect long term shareholders' return, which will be delivered through margin expansion and share repurchases. If the company actually delivers the projected 20% FCF growth, the stock's intrinsic value becomes $452, indicating a 27% CAGR.
I think the company's moat is wide as it has API integrations with large enterprises that have very high switching costs. I've personally worked on integrating my company's chatbot service with Salesforce agent hands off API. The project was complex and cost a lot to build, and I don't see any reason any company would stop using salesforce if they already are.
In conclusion, I think the stock looks cheap and will gradually add to my positions at current or lower prices.
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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.