Shares of Salesforce.com (NASDAQ: CRM) are up about 70% from the first of the year, and another double-digit gain is in store. The company just announced the first price increase in years, and it will boost the top and bottom lines. The company used the 22 updates and releases and $20 billion in R&B spending to justify the move. Regardless of the reason, we’re talking about an average 9% increase across all platforms which will translate directly to top-line growth, cash flow, and profits.
Among the company’s many advances was the release of EinsteinGPT earlier this year. EinsteinGPT provides personalized content across all of Salesforce’s clouds enabling greater efficiency and enhancing client experiences. Several additions, including MarketingGPT for sales campaigns and AI Cloud for enterprise-level generative AI capabilities, followed that roll-out.
The takeaway is that Salesforce.com, the leader in CRM services, is now the leader in AI-powered CRM services for businesses, and AI is an enormous market. Expected to grow at a 50% CAGR for the next several years, services are and will be the largest segment and are expected to command more than 70% of the multi-trillion dollar opportunity.
A Tailwind For Salesforce.com Share Prices
The analysts have supported the melt-up in Salesforce.com all year and will likely continue as the Q2 earnings season approaches. There are no new revisions immediately after the pricing announcement, but they are in the works and should keep the stock on Marketbeat’s list of Most Upgraded names.
Until then, the consensus of 39 analysts is Moderate Buy with a price target that assumes fair value with shares near $220. Interestingly, the high target, set recently, assumes another 25% of the upside, and many of the most recent targets are above consensus.
If the pricing increase doesn’t spark revisions, the following earnings report may do so. The analysts expect 10.5% revenue growth and nearly 60% EPS growth, which may underestimate the company’s strength despite the revision trend. The EPS outlook has received 35 upward revisions since the last report and no downward but fails to account for the company’s momentum.
Salesforce.com has been deepening penetration while expanding client counts driven by the secular shift to digital and outperforms the top and bottom line consensus figure about 100% of the time.
The company’s next report is due in late August, in time for the new price increases to go into effect. As strong a catalyst as the Q2 results may be, those increases won’t be seen in the results; the guidance is where that impact will be seen.
The company reiterated FY guidance for growth of about 10% at the end of Q1, and the analysts felt the targets were cautious then, so there is a chance for a substantial increase to the top and bottom line outlook.
Institutional Action May Cap Gains For Salesforce.com
The institutional activity in Salesforce.com has been mixed over the past 12 months but evenly balanced between the bulls and the bears. With total holdings near 80%, there is a high level of conviction, but rotation is underway within the group. The price increase and its impact on the outlook may alter the institutional tide; if it shifts in favor of the bulls, another rally is all but assured.
The chart is favorable to higher share prices. The stock has rallied strongly from its bottom, but a recent consolidation has allowed the market to cool off. The price increase sparked another surge that confirms support at a critical level and suggests the rally will continue. The critical resistance is at the top of the consolidation range near $225; if the market can move decisively above there, a sustainable rally should follow.
