Welcome back everyone. We have an exciting video to
jump into today. We're going to be talking about
Salesforce, the Enterprise level business to business company
that I've referred to, as many Microsoft.
Now I've talked about sales forces being an incredibly
strong company, one has a very wide moat a very sticky product,
one that's very difficult for companies to move from and their
software Behemoth. This company really has a good
franchise of software applications.
Now, there is also, Some concerning news with Salesforce.
I've done videos talking about the CEO seemingly not having his
head in the game. He's been hanging out with
celebrities. He has Matthew McConaughey on
retainer for ten million dollars a year and apparently he's been
invited to like Korn meetings and some stuff like that.
That's a little concerning. We also have them selling out
basically all of his shares any time he's paid.
So he's not holding his investments in the stock and
there's been some points of concern regarding sales force,
especially We with the governance of the company.
Now, they just had the recent quarter, we've seen the stock
jet up on. A lot of people are wondering,
what just happened is this real is Salesforce really on a good
track now or investors just becoming a little
over-enthusiastic. And that's what I hope to
answer. In this video, we're going to be
looking at the numbers. We have them all imported into
qual trim. I'll be reviewing, the actual
data will show how the company's evolving over the years and last
quarter. And then we're also going to be
looking at the future. Future.
The guidance that Salesforce is giving where their position in a
strong way and where they have work to do and I'm even going to
highlight an audio clip from this last earnings call from
Marc, benioff the CEO because I saw quite a bit of a tone change
from the CEO. So this is going to be an
informative episode. Especially if you're interested
in following this company, I think will be very informative.
We have a lot to jump into. So let's go ahead and get
started. Now, before we jump into
reviewing this quarter, I have to outline in terms of Closures
that. I am invested in Salesforce.
I'm a shareholder of the company.
I've outlined this company as one of the seven Investments.
One of seven Holdings in my story fund, which is my
secondary growth, centered portfolio, this portfolio.
If I blow it up here it is struggling.
It's down. 25%. I have some big bets in Amazon
and Netflix that haven't gone well, so far.
But these are long-term compounding Investments.
I'm not judging them based off of a one or two-year timeline.
I think they'll continue to do well, One of the companies that
I've invested in that I've invested in from the beginning
of this portfolio. Is Salesforce, why did I invest
in Salesforce? Because I've worked with this
product before, I've worked with this company, they have a
Stranglehold on the businesses that use their application.
By that, I mean, business is pick out what type of Enterprise
solution they want to go with to manage their sales and leads and
customer service billing and all of that stuff once they
Implement that into their business, once they As part of
their workflow, it becomes ingrained into the company.
It's like they're they're the veins that just transfer the
blood throughout the body, it becomes a part of them and to
unroot it is very difficult to move to something else has a
huge undertaking. So as businesses adopt
Salesforce into their workflow, they're stuck and less, they
want to go through the process of trying to merge over to
something different, which is a very difficult process.
That gives Salesforce. Residual clients that use their
software for years and years. And I think even decades that
makes it. So that when their customers
grow and they hire more employees, they have more seats
and user licenses, Salesforce grows with it.
And then on top of that, Salesforce has become a little
bit of a mini Microsoft, buying up.
Different companies like slack, like a mule soft like Tableau
and they add that as part of their offering.
They bundle it similar to how Microsoft has done they, follow
their same. Strategy, which It ultimately
leads to pretty good results. So the thesis on Salesforce is a
very wide moat company that will have a lot of future growth,
very sticky customers that have a very difficult time moving
from them. And then on top of that, there
is other additional elements of a moat where there's an entire
App Market on it, which is difficult to compete with, as
well. They just have a lot of
advantages, some terms of the actual company, the software,
the moat, the compounding going forward.
I think we We have a strong company here one that I want to
have an interest in and the problems with Salesforce are
ones that I consider to be solvable temporary.
I've made critical videos ones where I've criticized, the
relationship that Salesforce has with celebrities Salesforce is
pink. Matthew McConaughey reported 10
million per year for Creative help despite laying off 8,000
employees. This is, you know, 10 million a
year is not a big deal for company that revenues billions
of dollars. But it's more than the message
that they're sending her their attitude towards controlling
costs. This shows a Cavalier uncaring
attitude towards controlling costs.
Obviously they don't need to be paying Matthew McConaughey, this
much money. So this type of news has plagued
Salesforce. It's put a bad image on Marc.
Benioff it shows them as being careless with the money that
he's using the way that he's investing, and everything is
being driven for top-line growth and not profitability. 80 of the
company. So there you have my investment
thesis. There you have some of the
problems plaguing Salesforce. Now let's go ahead and jump into
the actual numbers and see what's happened.
Because not many things cause a stock to go up 12% after hours.
But here we see, only call trim that the stock is up. 12% after
hours and a note saying it's because of this earnings report.
So let's go ahead and look at what happened.
We have the latest numbers in here and just a side note, if
you're confused of what this software is, it's called qual
trim.com. It is included as part of the
page. Around.
If you join it today to try it out, you will not be charged.
You'll get charged in a month from now the beginning of next
month. So you have an entire month to
free. Trial it and as well as you get
access to the Discord Community, all the exclusive videos,
everything else, it's all all included.
There's no separate charges for any of that.
So try it out if you haven't. But let's go ahead and take a
look at these numbers here. First of all, let's go ahead.
Look at the prices sales force. It's gone up today.
Obviously we can see what's happened here.
Year-to-date it Actually up 38%. So it's on a very good run this
year. Like a lot of other software
companies they're having a little bit of a comeback but we
zoom out a little bit more. Two years Salesforce is creating
at one point above 300 dollars per share.
It got ahead of itself there and it's come down a lot.
Since then down nine percent over the past year being above
300 dollars per share. And currently its at 186 so
still over $120 down from its all-time high.
Now, let's go ahead and take a look at what happened.
This last quarter, and we have the latest numbers in here.
The first thing that we'll look at, is the revenue growth of the
company. The revenue last quarter was
eight point three, eight billion, which is up, 14 percent
year over year, they say, on a constant currency basis, that's
up 17%. So if you took out foreign
exchange issues, they actually grew Revenue 17% when you factor
in currency exchange, they grew 14% very fast revenue and, you
know, people criticize, These companies have Revenue growth,
slowed down for a quarter or two, but this shows a pretty
good history. You're looking at a strong
company here. Try to look up different charts
on qual, trim of any company, you name it type in any of them
and see how many companies grow Revenue.
This many quarters this consistently for this many
years. There is not many of them.
Not many in the entire world that is able to do that
Salesforce has a unique way of being able to grow Revenue.
The Ebola last quarter was 1 billion dollars.
So that looks in line with the past for nothing special.
There we get to, of course, my favorite chart here, I think the
most meaningful one, which is the free cash flow chart.
Now last quarter was very strong, two point five, seven
billion dollars in free cash flow.
We look at this one, two, three, four quarters ago and it was 1.8
billion, so the free cash flow year-over-year.
The same quarter 1.8 15 billion to two point five seven billion.
So, Seven percent increase in the amount of free cash flow
quarter over quarter or year over year.
The same quarter, very strong. This is a strong quarter with
both the revenue growth and the free cash flow growth.
Now, the thing that plagues these companies software
companies where you have to have a lot of Highly talented
individuals that have a skill set, that's pretty unique, which
is building these applications. They demand a lot of
compensation and these companies like to pay them in stock when
we flip over to Doc based compensation, qual, trim,
outlines it hair and purple. So at the orange and purple, you
can easily contrast. How much is free cash flow and
then how much stock based compensation?
They issued the same quarter. What we see here is a trend of
the stock based compensation going up a little bit about as
much as a free cash flow and then it really spiked up in
2021. And then, look, what happened.
It's actually down from where it was three quarters ago.
If we look at this, we can Zoom in.
Maybe you can see this a little bit better here.
Maybe not. We gotta zoom and take a look at
it here. Maybe I'll just zoom in on the
video right here. Can you see how it's going down
ever? So slightly the past.
Three quarters consecutively. It's gone down.
I take that as a positive thing because the free cash flow grew
26 percent year over year and the stock based composite
actually going down. Meaning that they're growing,
the company without growing the expenses that is a positive
thing. That's obviously What's leading
to their margin expansion? And they did have dramatic
margin expansion in this quarter.
So right there, that is scalability.
That's what we want to see in software company's Revenue going
up with cost maintaining or going down or at least going up
at a slower rate. What we do not want to see our
companies where the stock base Compass is outpacing, the free
cash flow and it's outpacing the revenue.
That's what's plagued. A lot of companies like Google
and meta their stock based composite going up like Crazy.
Even at a faster rate than their profitability.
So right here, we see a company that at least right now, it
looks like they're actually focusing on their costs.
It's really good to see. I think this is really a
material positive thing to see. If we look at the kegger, a both
of them, the compound annual growth rate, we have the stock
based compost, past 10 years, growing at 27% and the free cash
flow growing at 29%, so both of them are going up in tandem, but
we Have these stock-based compensation up at a slightly
lower speed, that's that's a good thing again.
Profitability and revenue growing at a faster paced and
expenses. Very good thing.
After that we can take a look the the cash balance.
I don't think the earnings per share is as important right now
they have all these non-gaap metrics that they go by because
of one-time cost. But if we look at the the cash
balance here, I want to take a look at this as well.
This shows the health of the company.
The company has loads of long-term debt.
And they don't have a lot of cash that can put them into dire
situations. If their debt matures at the
same time. When I look at Salesforce, I can
break it down and just look at the debt.
The debt outstanding in isolation is quite High, 8.8
billion, but once you factor in cash, they have right now. 12.5
billion dollars in cash. They are fine, they have more
cash than long-term debt you factor in capital leases which
is renting out of there. Very nice Office Buildings.
They still have more cash than In both their long-term debt and
their Capital leases. This company in terms of its
cash, balance is incredibly strong.
They have no leverage their like Costco in this regard they're
not putting the company at Jeopardy by taking out, high
amounts of Leverage and you have to give them credit a lot of
companies. They do a thing where they take
out debt to buy back their own shares, they take out more and
more debt to buy back more shares.
So they'll do BuyBacks but they're all debt funded and
their debt will go up far past their cash balance.
Where they'll ever up more and more and more and more until the
company is at 5 or 6 times, their leverage of their ibadah.
And although that can be rewarding to the shareholder
when you do that, it's only for a limited amount of time.
Salesforce isn't doing that. They're not Levering up to do
BuyBacks, they're keeping their balance sheet, very strong.
Now just a pause halfway through this checkup so far, I think
things look pretty good. The revenue is growing at a very
fast pace, 17 percent year-over-year.
The free cash flow is growing even faster.
It Grew over 20% year-over-year with the stock based compound
down, that's like an added bonus.
So expenses are going down their revenues growing.
The real free cash flows are growing.
And then on top of that, the balance sheet, looks very strong
more cash than debt and capital leases.
I have to say so far. Mid checkup will continue to
look at it but mid checkup, I I like what I see.
I think things look really, really good.
Now, of course, the next thing is the dividend does Salesforce
pay a dividend, obviously not I can blow up the graph.
Here we have nothing in their history and this is something
that I do like to see in companies is when they pay a
dividend companies that pay long-standing growing.
Dividends are typically decent companies.
You can't grow a dividend over a 20-year period without growing
your cash flows. So not paying a dividend is
something that's I think it's a little bit of a - I think it's
something that I don't like to see but it's one of two ways.
A company can return Capital, the company doesn't pay a
dividend typically they'll Return Capital back to the
shareholder in the form of share BuyBacks.
And that's where we look at the shares outstanding chart.
Here's something that I would give us a warning when you're
trying to look at the amount of share BuyBacks.
A company does do not take the number at face value they'll say
that we bought back to billion dollars of shares but what they
won't mention is that we issued two billion dollars of shares if
a company issues two billion dollars of shares and then they
buy back to billion dollars of Where's the share count Remains
the Same. You haven't gained any Equity,
any interest in the business. It's flat that doesn't help you.
That's not really returning Capital, back to you the way to
actually determine whether or not your interest in the company
is increasing is looking at the shares outstanding chart.
If the shares outstanding are going up over time, you're
losing interest in the business, you are being diluted if they're
going down over time. You are gaining interest in the
company. In this case, for the entire
history of Salesforce, they've issued shares and issued shares
and sometimes they've done even a bigger issuance to buy things
like slack. So little little jumps here,
quarter over quarter and the shareholder is continually being
diluted. Now, if we look at last quarter
and I know this is difficult to see last quarter, the actual
share count went down which means that Salesforce actually
did effective BuyBacks. They bought back more stock than
they issued. It went down
quarter-over-quarter by minus one point three percent.
So they actually reduce the share count one point three
percent which is around one point eight billion dollars
worth of actual affected by backs.
It's pretty good for single quarter.
Buying back almost two billion dollars worth of shares.
I like it. I like seeing directionally that
now, the chairs aren't going up and this is the first quarter,
this has ever happened. Sure, count went down.
There are now returning. Capital back to the shareholder.
Very interesting to see the company, finally, do this.
The last things that we can look at here.
The ratios of the company, this just looks awful, like we have
the operating ratio. It's basically flat hair.
They have a bunch of adjusted metrics they use profitability
is at 5%. So very small profit margins
right now, but they are increasing.
And then finally, we have the expenses chart here.
I can look at this quarter over quarter and this is Thing,
that's very interesting to see, I look at the expenses here,
what do we noticed over the past year, the total expenses of
running Salesforce are going down as the company's growing
double-digit revenues. The expenses are decreasing
quarter-over-quarter. This is something I think is
very positive. Now if we actually have a break
down here, the expenses are going down in research and
development, General and administrative what they're
keeping pretty flat is sales and marketing because that is a
growth driver of this company they have to get on.
Phones. They have to do the corporate
sales funnel. That's how they actually grow
the revenue. So this is an important part of
their expense. The general administrative
research and development. I'm not sure exactly what
they're doing there, but these numbers are going down.
When I look at this quarter overall, I like it, I don't know
how people couldn't like this quarter, the revenue is growing
at double digits. The free cash flow grew at 20%
plus year over year with stock-based compensation, down
the balance sheet, looks fantastic shares outstanding are
going down at a pretty decent pace.
Now, Now the company's ratios are improving, their margins,
have improved a lot, just over the past year and the expenses
are going down there, going down, as the company's growing,
what's not to like with this quarter.
I think overall, it's deserved that the stock went up 10%.
I don't think that that's an over reaction from the market.
Now obviously, something changed in the past, 90 days.
I think it may have had something to do with the three
different activist investors involved in the stock, but the
attitudes were different. And the way the company is being
managed, Be a little bit different when I was listening
to the earnings call, one part of the stuck out to me, it was
Marc benioff and it was the first question that he answered
on the call. He showed, what is his main
focus right now? Let me go ahead and play this
clip because I think I think you'll find it interesting.
There's basically two motions here.
One is just like we just heard Brian has to continue to deliver
the a CV. You know, that's why we're
keeping a lot of stability in our sales organization right
now. Painting the productivity
deliver the year and a CV. This is really critical for us.
That's motion. Number one, motion number two.
Is also at the same time, profitability, profitability is,
are truly our number one strategy, and that's my number
one strategy. That's what I've been focused on
with the profitability, is now his number one strategy,
mentions profitability over and over and over again, management
team. That is the number one thing we
talked about at the start. Of every meeting we have in this
company and that is why we are able to deliver that in 90 days,
you all know that we've never had an efficiency focus in the
company before because we've had 24, incredible years of where
we've had to just grow. Grow.
Grow there have been moments where we had to pull back 01:02
bad recession would to pull back 08-09.
We had to pull back and reassess, we're kind of looking
at this moment as hey, we can reassess.
This is a Say incredible moment, we can deliver great results.
You saw, we're delivering more than 10 percent growth Revenue
growth, but we want to deliver this more than 27 percent margin
growth for the year and not growth, but tarp Margaret
emergent Target and we're going to obviously the growth rate is
actually much higher. Now, my main takeaway from this
and listening to him on the call is that he got the memo very
clearly. He is responding to shareholders
once and request. He has a lot of activist
investors involved in the stock, the company's taken a lot of
flack recently, a lot of bad press.
Marc benioff sees that, and he's saying that now we're focused on
profitability, we're going to serve the shareholders, and I
think that this is a good response.
Now, you might just say that he's a smooth, talk and CEO,
obviously. He's very good at communication.
So, we might just be saying this to appease shareholders true,
but the numbers are showing that he's actually doing what he's
saying. They are focused on
profitability, all the expenses are coming down all the the cost
of the company in the margins are improving.
So I believe him, I think he has focused on Ability.
And as far as I can tell, I think that sells horses on a
very good track now, I think they're headed in the right
direction. Now, in terms of the future
sales force, the company also gave guidance and almost every
metric was above what the analysts were predicting,
they're predicting strong, Revenue growth, very strong
margin expansion. That's the main one, which
again, is that focus on profits. So, they gave this guidance is
stronger than what the analysts were expecting.
There's a bigger, focus on marginal Improvement,
restructuring the company cutting costs, Cutting cutting
off excess. This is all stuff that I like to
see overall. When I look at Salesforce,
there's a lot of opinions on this company, but I still think
the core aspects of the company remains strong, that is the mode
of the company, the pricing power, the switching costs and
it's huge franchise of software. I think the biggest issues have
been governance related, wasteful spending, and an era of
low interest rates as Marc benioff pivots his direction
from being a company. That's only obsessed with Top
line, revenue growth and Kingdom, building with acquiring
more and more assets to now, one that's growing.
Its core products and profitability margins, I think
the company could outperform over the next couple of years.
So, my opinion, as far as I'm concerned with my holding, I
remain bullish on Salesforce. I'm going to continue to hold
the company. I think it may outperform.
I really do. But I'll continue to track it
and give my thoughts so far. I like the direction.
See you in the next one. Top line, revenue growth and
Kingdom, building with acquiring more and more assets to now, one
that's growing. Its core products and
profitability margins, I think the company could outperform
over the next couple of years. So, my opinion, as far as I'm
concerned with my holding, I remain bullish on Salesforce.
I'm going to continue to hold the company.
I think it may outperform. I really do.
But I'll continue to track it and give my thoughts so far.
I like the direction. See you in the next one.