Since its founding 20 years ago, Salesforce.com (NYSE:CRM) has been defined by the brash personality of CEO Marc Benioff.
Now, like many of his Silicon Valley peers, Benioff is trying to pass the torch, naming Keith Block co-CEO, plying him with gifts and elevating his status so that Benioff can be a philanthropist and public figure.
It’s the right time to do it, with Salesforce coming off a record year. For fiscal 2019, it reported net income of $1.11 billion, $1.43 per share, on revenue of nearly $13.3 billion. The forecast is for this to continue, with fiscal 2020 non-GAAP earnings estimated at about $2.75 per share, on revenue of about $16 billion.
If Salesforce can hit these marks, its market cap of about $121 billion will look reasonable, and the April 16 opening price of almost $161 per share will look cheap.
Growing Salesforce Cloud
Salesforce pioneered the business of Software as a Service (SaaS), delivered using clouds, with Benioff spending much of the current decade freeing his customers from dependence on Amazon.Com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), all of which are now “partners.”
The result is that cloud-based SaaS companies like Salesforce are in a “sweet spot,” with Salesforce commanding 20% of the Customer Relationship Management market. Its most recent success is Einstein, introduced in 2016, an analytics program that can predict consumer behavior based on enterprise data stores.
Salesforce is also introducing Quip, a collaboration tool bought in 2016, to its platform, and this is where things get cloudy, because many of the companies Salesforce collaborates with, including the Cloud Czars, already offer similar functions.
Clouds Around CRM Stock’s Business
The sky around Salesforce is getting cloudy, as Adobe (NASDAQ:ADBE) has made its graphics software a marketing tool, and teamed up with Microsoft to take on Salesforce’s CRM niche.
This jockeying for position also takes place on lower cloud levels. When Solarwinds (NYSE:SWI) bought Samanage, a Salesforce investment, it moved toward becoming a competitor to ServiceNow (NYSE:NOW), and may have pushed that company into the arms of the Adobe-Microsoft alliance.
The growing complexity of Artificial Intelligence is also pushing Salesforce into a global position, as it recently opened a lab in Singapore. Salesforce, now based in a landmark San Francisco skyscraper, is also planning other skyscrapers in cities like Boston, physical manifestations of virtual dominance.
The danger for investors is this can make Salesforce a target. It’s now facing a lawsuit over sex trafficking, as women say its software was used by the company that helped traffic them, and customized for the task. The man behind the website has pleaded guilty and offered to testify against his business partners.
The purchase of Salesforce.org, a charitable foundation that sold its software at a discount to charities, for $300 million may distract from those headlines, as Benioff continues to make himself over as a great man, buying Time Magazine and pushing his fellow billionaires to support the homeless.
The Bottom Line
With Benioff increasingly distracted, and Salesforce increasingly scaled, co-CEO Block is stepping up as the public face of the company, which may be behind the gifts of a fancy car and expensive watch.
Block, who joined in 2013, is now the go-to guy to talk about the company’s technology initiatives, as it cements itself as an institution beneath the clouds that serve its software.
Investors who came along for the ride with Benioff have reaped huge gains. New investors are betting on Block.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.