Despite rapidly increasing its scale over the last several years, this wide-moat firm continues to deliver growth well above its peer group at the top of the enterprise software food chain.
By Rodney Nelson | 10-04-16 | 08:10 PM | Email Article

We attended  Salesforce.com's analyst day at the firm’s annual Dreamforce conference, we came away with several insights into how the company plans to manage improving profitability against a backdrop of consistent top-line growth, including management’s assertion of reaching $10 billion in revenue in fiscal 2018 (in line with our expectations). The company’s recent acquisition binge was a key topic of discussion as well, but we generally feel comfortable with both the size and strategic scope of Salesforce.com’s recent purchases. We are maintaining our $95 fair value estimate and wide moat ratings, and we believe the shares offer an attractive entry point today.

Rodney Nelson is a senior equity analyst for Morningstar.

Despite rapidly increasing its scale over the last several years, Salesforce continues to deliver growth well above its peer group at the top of the enterprise software food chain. The company has largely accomplished this by two ladders of innovation: first, internally developed technology via new clouds and incremental features; and second, the company has acquired its way into new application verticals, such as ExactTarget for marketing and Demandware for digital commerce. In regard to ExactTarget, management noted that the company learned several crucial lessons in the integration process, which should ultimately translate to faster revenue and cost synergies for the company’s more recent deals, including data management platform Krux earlier this week. Management characterized its recent spending binge (more than $4 billion in acquisitions this fiscal year, and well over $6 billion total in the last four years) as a constant decision tree between “build versus buy,” and we believe the company has generally struck a healthy balance to that end. Research and development will total roughly $3.5 billion over the same four-year period, and we believe new products such as the IoT cloud and the Einstein A.I. platform should quell investor concerns that the company is struggling to innovate on its own.

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