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Welcome back, everyone. 
We have a lot to jump into in 

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this video. 
First of all, the market across 

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the board from the Dow Jones, to
the NASDAQ is in the red and 

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they say that it's based off of 
economic concerns worries Mount 

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about economic growth, right? 
That is the concern. 

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And I think it's a valid one. 
We have Jamie dimon here. 

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The CEO of JPMorgan telling 
people to brace themselves for 

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economic hurricane caused by the
fed and the Ukraine war. 

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So, we have the CEO of the 
largest bank in the world 

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telling people to break. 
Themselves, that's not really 

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what you want to hear and I 
think that him saying this may 

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have actually caused the markets
to swing into the red. 

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I think this has a lot of 
impact, but regardless today, 

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even despite all this Gloomy 
news and the markets moving down

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Salesforce. 
One of the nine Holdings in. 

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The story fund is up 10% And 
this move is off the backs of 

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their recent earnings report. 
Obviously investors found 

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something or a couple things 
that they really liked in this 

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earnings reports. 
So I went ahead and I reviewed 

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it. 
We're going to dive into it. 

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Gather, we're going to look over
the financials. 

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We're going to look over all the
important things to look at with

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a company like this, the growth 
of it, the margins, the 

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dilution, right? 
The sustainable moat as well as 

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the valuation. 
I've ran multiple models of cash

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flow analysis and how to Value 
this company. 

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So we're going to be diving into
that as well. 

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So we have a lot of fun news to 
get to in this episode. 

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Now, before we jump into 
Salesforce specifically, I want 

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to give an update on the story 
fund. 

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If you're one of the new 
subscribers to the channel, if 

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you're one of the new members 
here, we've gained a lot of sir.

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Scribers over the past couple of
months. 

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This is a real portfolio. 
And the reason that I show this 

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every week and keep updating 
every week is to show 

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transparently real investing and
I think that that's actually 

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important if you get just 
Snippets of what people are 

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doing and you see their 
portfolio updates, once every 

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six months, you don't really see
the pain. 

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That happens between transitions
like what's going on right now. 

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The past six months has been 
very difficult for growth 

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companies. 
So what I decided to do was to 

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transparently And weekly track 
my portfolio and give everyone 

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else in insight into what's 
going on, good or bad. 

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And we can see the the sell-off 
Senate, we can see the market 

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gains and everything happened. 
But this is a real portfolio. 

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It's my money invested in it. 
I'm trying to make as much money

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as possible, the goal of the 
portfolio. 

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The game that I'm playing here 
is to try to outperformed the 

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S&P 500. 
By the end of 2025 and I track 

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that as well, in a benchmark. 
So I Benchmark this performance 

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against the S&P 500. 
We can look at That right here. 

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This is the chart and my 
portfolio. 

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The story fund is the Blue Line.
The S&P 500 is the red line so 

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we can see that throughout the 
duration of it. 

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I was keeping up with it. 
I was even outperforming to some

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extent at some time periods. 
But since November, when the 

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sell-off really happened, the 
big transition to the consumer 

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staples and the big rotation out
of tech did hurt my portfolio 

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and then there's been some other
things as well. 

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But there's other videos where I
go into this in more. 

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Detail, but as of right now, 
this is what the performance 

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looks like. 
The story fund, actually had a 

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good week. 
We actually gained on the S&P 

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500 last week. 
And I think this is illustrative

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of probably what I think is more
to come in the future. 

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Meaning that if we have bullish 
sentiment, if the markets do end

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up moving up at all. 
I think these type of companies 

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will move up at a much quicker 
Pace than the big defensive 

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Consumer Staples. 
So the market right now is in 

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Risk off. 
Mode, everyone's wanting to be 

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defensive when the market 
becomes a risk on again, which I

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think will happen at some point 
within the next three years. 

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I think the market will want to 
take on some risk at some point.

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When that happens. 
I think that these companies 

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will do better. 
And you saw that last week, my 

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portfolio went from being down 
32% to being down 23.5%. 

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So moved up a pretty significant
amount and the S&P 500 went from

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point, eight percent to four 
point three, so we're gaining on

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it, but that's only when the Has
some type of bullish sentiment 

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and you want to take on some 
risk. 

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So as of right now, we're still 
below the S&P 500. 

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But we're not we're not 
completely out of the range of 

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catching back up and you can see
again how quickly things can 

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change in just one week's time. 
This portfolio is up 9%. 

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In just the past five days. 
The S&P 500 is up four and a 

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half. 
So we gained a lot of ground, 

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seven thousand nine hundred 
dollars in one week. 

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A lot of that is due to Amazon. 
My largest position moving up 

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14% That's a 4500 gain from 
Amazon alone then. 

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Google moved up quite a bit. 
We have Ali Baba, moving up over

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the past five days. 
We have Salesforce just today 

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moving up, 10%. 
So let's go ahead and jump into 

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Salesforce specifically. 
Now Salesforce is one of the 

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companies that I've referred to,
as many Microsoft and I say that

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because it reminds me a lot of 
Microsoft. 

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They're kind of a business to 
business company. 

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They sell software as a service 
and they are entrenched in 

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companies that use their 
products. 

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They have a sticky service 
meaning that when a company 

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signs up for Their product and 
they start to implement it, they

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start to get used to it. 
They start to build upon it and 

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use apps and Integrations. 
It becomes entrenched in the 

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company where to unroot that and
move to a different service is 

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cumbersome and expensive. 
So it takes a lot of effort to 

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move out of Salesforce to a 
competing service and most 

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companies. 
Once they sign up for 

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Salesforce. 
They stick with them, that's 

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called switching costs. 
The switching cost from 

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Salesforce to a competing 
service is very high. 

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So that leads to high customer 
retention. 

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Now for those Of you who are not
familiar with Salesforce. 

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I want to show this quick video 
that explains it from a 

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marketing standpoint. 
So this is marketing material 

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created by Salesforce that they 
use to sell to different 

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companies. 
Only put on my headphones here. 

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We'll watch this together. 
Welcome to The Trusted 

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Enterprise. 
This is the digital world where 

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we no longer have to be in a 
building to start building. 

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Unless, of course, we want to be
building better customer 

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relationships employee 
experiences, workflows 

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Partnerships apps, and Roi. 
So let's build on that. 

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With Salesforce customer 360 and
slack on one integrated 

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platform. 
We're talking if you don't 

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remember, Salesforce did acquire
Slack. 

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They use dilution and some debt 
and some cash to do it. 

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In my opinion. 
I think it was a great 

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acquisition. 
So a lot of investors were very 

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cautious about it because slack 
was an expensive acquisition to 

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have. 
But slack is like the go-to 

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business-to-business chat 
application. 

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It's competing with Microsoft 
teams, but I kind of compare 

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slack to businesses like Discord
is to online communities. 

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It really is a really good 
acquisition for Salesforce, in 

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my opinion, but the full on 
digital transformation energy. 

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So, those headquarters of yours 
are now, wherever the work 

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happens. 
This is your digital HQ the 

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place for every employee to 
better connect with each other 

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and customers. 
This is where all your team's 

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Unite with a single shared view 
of your customers, delivering 

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incredible, customer 
experiences, incredibly 

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efficiently because it's all 
asynchronous. 

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Meaning work stays fluid. 
So that meeting everybody was 

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too busy to attend is still 
attended by everybody on their 

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time through a shared Channel 
access. 

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I think every important document
presentation and recorded 

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message left for each other, 
with live captions, baked in 

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making it accessible to anyone. 
This is where all your customer 

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data is gathered to generate 
pipeline reports for marketing. 

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So they know when the quickly 
spin up, they also own Tableau. 

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So that was another acquisition.
They did, it's an application 

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that shows you charts and graphs
and visuals and I think another 

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one that turned out to be really
good for Salesforce. 

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So this is a company that like 
Microsoft, they keep picking up.

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Different Acquisitions that are 
strategic and they actually have

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Synergy there not just 
Acquisitions to buy random 

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companies and to increase their 
revenue, but they actually end 

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up building them into their core
service. 

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That the genius, new campaign 
boosting idea with their agency 

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partner securely through slack 
connect and where it integrates 

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apps to improve data, accuracy 
and productivity. 

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For everyone. 
This is where customer 

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engagement takes off. 
It's where sales sets up a 

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digital deal room with Commerce 
to strategize around 

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capitalizing on the Pain, 
boosting momenta inviting legal 

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operations, support Carl from 
finance and more creating 

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workflows a streamline at all. 
Now meeting notes are 

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automatically added new contacts
are automatically created and 

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reps are instantly notified of 
account updates wherever they 

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are. 
This is where leads become 

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customers customers who can 
count on the best support 

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around. 
Because this is where service 

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portals with knowledge articles 
and chat Bots are at the ready 

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to solve issues and when 
something needs to be escalated,

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Agents can swarm identifying the
right team members based on 

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skills to take immediate action.
And every team is United. 

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So marketing emails and sales 
calls are temporarily Faust. 

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Until the case is resolved 
because nobody wants to be 

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marketed or sold to when they're
having an issue. 

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This is where Trailblazers 
listen to customers and create 

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platforms for change. 
This is where customers become 

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customers for life. 
Then swap out sales marketing 

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and service with Landers Brokers
and investors. 

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Helping entrepreneurs, open 
their next location or 

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Healthcare or retail or 
manufacturing or entertainment. 

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Because it's built for every 
industry imaginable. 

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This is where every employee in 
every Department working from 

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anywhere is aligned with a 
single shared 360 degree view of

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every single customer. 
Your customers are everywhere 

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and your new digital HQ is how 
you connect with them to succeed

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from anywhere. 
This is Salesforce customer 360 

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and slack on one integrated 
platform. 

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This is where workflows and 
customer success grow. 

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Okay, that's a little again 
that's marketing material from 

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Salesforce. 
So they're trying to sell that 

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to other businesses, but I think
it does give you an idea of what

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the company has to offer. 
And I think that also gives you 

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an idea of why when a company 
starts to use Salesforce, it 

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becomes very difficult to move 
off of it. 

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The switching costs are very 
high. 

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So now that we're a little bit 
more familiar with the services 

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that Salesforce offer, the 
value, that it brings to other 

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businesses. 
Let's go ahead and talk about 

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the fundamentals of the company.
What's going on with the balance

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sheet, the financials, all of 
that, good stuff. 

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As well as the valuation. 
First of all, this was one of 

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the companies that like we saw 
right here in November that 

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time, period, that magical 
November time period. 

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When all these companies had a 
high started to trade downwards 

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and it's down 43%. 
So Salesforce is one of the 

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companies, the cloud leaders, 
the big tech companies that got 

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sold off with the rest of them. 
It wasn't sold off as much as 

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some speculative ones, but was 
sold off more than any non tech 

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company. 
Right now, if we look at the 

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fundamentals of the company, we 
have the most recent earnings 

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report data included in this. 
So This is called term insights.

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This is an application you gain 
access to. 

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If you're a member of the 
patreon, and this is the beta 

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version of the new ones. 
So we are plugging in some stuff

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and doing some things here. 
It's kind of a work in progress,

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but this is going to be the new 
version of it. 

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We look at Salesforce overall, 
the company on a PE basis, looks

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kind of expensive, but most 
people aren't valuing it. 

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That way, if we look at the most
recent financials, we get a 

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clear view here. 
This again includes last 

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quarter. 
So, last quarter right here, 

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they Revenue 7.41 billion 
dollars, 7.41, that is a revenue

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gain year-over-year of 24 
percent and it beat their 

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00:11:38,600 --> 00:11:41,000
analysts estimates. 
So they out performed on a 

230
00:11:41,008 --> 00:11:43,100
revenue basis. 
There up twenty four percent 

231
00:11:43,100 --> 00:11:45,800
year over year, which is very 
strong Revenue, growth for a 

232
00:11:45,800 --> 00:11:48,400
company, the size of Salesforce.
And I anticipate that they'll 

233
00:11:48,400 --> 00:11:50,700
continue have solid Revenue 
growth for very long period of 

234
00:11:50,708 --> 00:11:52,300
time. 
Now, the other thing that I just

235
00:11:52,300 --> 00:11:55,000
want to point out real quickly, 
here is looking at the revenue 

236
00:11:55,000 --> 00:11:55,900
chart. 
Do you? 

237
00:11:56,000 --> 00:11:58,900
You see how consistent it is. 
Almost like this. 

238
00:11:58,900 --> 00:12:00,800
Perfect, growing. 
Gradual slope 

239
00:12:00,800 --> 00:12:03,400
quarter-over-quarter. 
I've looked at a lot of Revenue 

240
00:12:03,400 --> 00:12:05,500
charts and there's not many of 
them that look like this. 

241
00:12:05,700 --> 00:12:07,900
Most companies have very 
inconsistent Revenue. 

242
00:12:08,100 --> 00:12:10,700
Some quarters are making more 
than others because they're 

243
00:12:10,700 --> 00:12:13,700
encyclical markets. 
Will this is the benefit of a 

244
00:12:13,700 --> 00:12:16,600
SAS company. 
Salesforce is a cloud SAS 

245
00:12:16,600 --> 00:12:18,900
company that has high retention 
rates. 

246
00:12:19,100 --> 00:12:21,400
Long contracts, continual 
billing. 

247
00:12:21,500 --> 00:12:23,600
They have continual price 
control and they can increase 

248
00:12:23,600 --> 00:12:25,600
their prices over time. 
And that has the effect of 

249
00:12:25,600 --> 00:12:27,400
having this. 
Really nice flowing Revenue 

250
00:12:27,400 --> 00:12:29,400
growth over time. 
Now, the revenue growth for a 

251
00:12:29,408 --> 00:12:32,800
company like Salesforce is 
incredibly important because a 

252
00:12:32,800 --> 00:12:37,500
company is priced to have a very
long-term secular growth path. 

253
00:12:37,700 --> 00:12:40,900
Meaning the company is being 
Priced Right Now by investors 

254
00:12:41,100 --> 00:12:44,600
assuming it's going to grow at a
very decent mid double-digit 

255
00:12:44,600 --> 00:12:48,000
pace for the next 10 years. 
If the company suddenly showed 

256
00:12:48,000 --> 00:12:51,500
that it stopped growing like the
revenue just started to flatten 

257
00:12:51,500 --> 00:12:54,400
or completely decline. 
You'd have a bit of a Netflix 

258
00:12:54,400 --> 00:12:56,500
situation there. 
We saw how Netflix. 

259
00:12:56,500 --> 00:12:59,600
Investors reacted when the 
company stopped growing that is 

260
00:12:59,600 --> 00:13:02,700
the same risk for Salesforce. 
If it stops growing, the stock 

261
00:13:02,700 --> 00:13:05,600
price will crumble, but I think 
again with Salesforce, the 

262
00:13:05,608 --> 00:13:07,500
assumption is, it's going to 
keep growing and I think there's

263
00:13:07,700 --> 00:13:09,300
a very good reason to believe 
that. 

264
00:13:09,300 --> 00:13:11,500
Now the revenue is important, 
but we also want to look at the 

265
00:13:11,500 --> 00:13:14,200
other economics of the company. 
Not just how much money they're 

266
00:13:14,200 --> 00:13:17,400
taking in but how much they're 
keeping the ibadah is a proxy 

267
00:13:17,400 --> 00:13:19,300
for their earnings of the 
company. 

268
00:13:19,400 --> 00:13:22,500
And it tries to smooth this out 
over time last quarter. 

269
00:13:22,500 --> 00:13:26,600
They had 991 million dollars of 
ibadah, which is Decent. 

270
00:13:26,600 --> 00:13:29,700
This was again above 
expectations then their free 

271
00:13:29,700 --> 00:13:33,300
cash flow, which is possibly the
best metric to look at for a 

272
00:13:33,300 --> 00:13:36,200
company over time. 
This is a record high from 

273
00:13:36,200 --> 00:13:39,900
Salesforce three billion four 
hundred and ninety seven million

274
00:13:39,900 --> 00:13:43,600
dollars in free cash flow. 
Now one important thing you want

275
00:13:43,600 --> 00:13:46,500
to look at especially with tech 
companies, when you're looking 

276
00:13:46,500 --> 00:13:49,100
at the free cash flow of the 
company is you want to put this 

277
00:13:49,100 --> 00:13:52,400
into context of share dilution, 
because a lot of tech companies 

278
00:13:52,400 --> 00:13:55,800
in particular, they pay their 
employees by stock-based 

279
00:13:55,800 --> 00:13:56,700
compensation. 
Sensation. 

280
00:13:57,000 --> 00:13:59,200
And the way that you get 
stock-based, compensation is by 

281
00:13:59,200 --> 00:14:01,800
issuing more shares. 
So you dilute the shareholders, 

282
00:14:01,900 --> 00:14:05,700
you issue more shares, you use 
that money as cash flows to pay 

283
00:14:05,700 --> 00:14:08,900
the employees and that does show
up on the free cash flow line 

284
00:14:08,900 --> 00:14:11,700
item here. 
Now, the amount of stock-based 

285
00:14:11,700 --> 00:14:15,400
compensation that Salesforce did
last quarter was seven hundred 

286
00:14:15,400 --> 00:14:18,200
and seventy six million dollars.
What I did was, I went into 

287
00:14:18,200 --> 00:14:20,800
their earnings report right 
here, where they mention their 

288
00:14:20,800 --> 00:14:22,500
stock based compensation 
expense. 

289
00:14:22,900 --> 00:14:24,900
And then I just added up each of
these items. 

290
00:14:25,100 --> 00:14:28,300
They had the cost of Revenue. 
News of 112 million, they had a 

291
00:14:28,300 --> 00:14:31,300
research and development of 279.
They had marketing and sales of 

292
00:14:31,300 --> 00:14:34,900
291 and they had General and 
administrative of 94. 

293
00:14:35,300 --> 00:14:39,600
So Salesforce pays a lot for 
this marketing and sales and 

294
00:14:39,600 --> 00:14:42,000
research and development in 
terms of diluting the 

295
00:14:42,000 --> 00:14:44,100
shareholder. 
So basically all we need to do 

296
00:14:44,100 --> 00:14:46,300
is look at the free cash flow. 
And if you want to factor in 

297
00:14:46,300 --> 00:14:49,900
share dilution, you can - out 
the 7 76 million and that's what

298
00:14:49,900 --> 00:14:52,800
you're left with after dilutions
taken effect. 

299
00:14:52,800 --> 00:14:56,100
And even though Salesforce is 
diluting the shareholder and You

300
00:14:56,100 --> 00:14:57,600
can clearly see that 
Illustrated. 

301
00:14:57,600 --> 00:14:59,700
Even in call term here. 
This is the amount of shares 

302
00:14:59,700 --> 00:15:02,200
outstanding over time since the 
beginning of the company on a 

303
00:15:02,208 --> 00:15:04,700
quarterly basis. 
We can see that they are 

304
00:15:04,700 --> 00:15:07,500
diluting the shareholder and 
this is something that I hate to

305
00:15:07,500 --> 00:15:10,200
see, I really exclude a lot of 
companies. 

306
00:15:10,200 --> 00:15:13,200
I don't buy a lot of companies 
because they love to just pump 

307
00:15:13,200 --> 00:15:16,000
out more shares, pay their 
employees and their Executives, 

308
00:15:16,300 --> 00:15:20,000
very big pay packages, right. 
The executives make a fortune 

309
00:15:20,300 --> 00:15:22,300
while neither shareholders, just
being diluted. 

310
00:15:22,500 --> 00:15:25,400
And a lot of times they're not 
doing a creative things with 

311
00:15:25,400 --> 00:15:27,400
that dilution. 
They're not taking the money and

312
00:15:27,400 --> 00:15:28,900
doing something to make me more 
money. 

313
00:15:28,900 --> 00:15:33,100
So Salesforce and their dilution
is something that I don't like. 

314
00:15:33,100 --> 00:15:35,400
But having said that, this is 
one of the exceptions I make 

315
00:15:35,400 --> 00:15:39,100
because Salesforce is generating
cash flows at a much quicker 

316
00:15:39,100 --> 00:15:41,900
rate than their dilution. 
So if you were to Pace out the 

317
00:15:41,908 --> 00:15:44,900
dilution and then you're at a 
pace out the free cash flows. 

318
00:15:45,100 --> 00:15:48,100
They're still growing their free
cash, flows on a diluted basis 

319
00:15:48,400 --> 00:15:50,000
much quicker than the average 
company. 

320
00:15:50,100 --> 00:15:52,700
So, overall, putting this in 
context, it is true that 

321
00:15:52,700 --> 00:15:54,400
Salesforce is diluting 
shareholders. 

322
00:15:54,600 --> 00:15:57,600
They did around 7%. 
ENT last year, but they are 

323
00:15:57,600 --> 00:16:00,700
growing their free cash flow at 
a much more rapid pace. 

324
00:16:00,700 --> 00:16:02,900
And over time. 
I think this rate of dilution 

325
00:16:02,900 --> 00:16:06,800
will go down like most mature 
tech companies do with Adobe, it

326
00:16:06,800 --> 00:16:09,600
went down and now they're doing 
share BuyBacks with Microsoft 

327
00:16:09,600 --> 00:16:12,100
and Google and all the big tech 
companies that used to dilute. 

328
00:16:12,300 --> 00:16:13,800
Now. 
They're not doing this anymore. 

329
00:16:14,100 --> 00:16:17,900
So I think that over time, this 
chart will go up with dilution, 

330
00:16:18,000 --> 00:16:20,300
then it will level out. 
Then when they become so free 

331
00:16:20,300 --> 00:16:22,100
cash flow positive. 
They'll start to do share 

332
00:16:22,100 --> 00:16:23,700
BuyBacks. 
That's why I think this will end

333
00:16:23,700 --> 00:16:25,800
up over time now, moving on to 
another important. 

334
00:16:26,000 --> 00:16:29,400
To look at what the company like
Salesforce is, the amount that 

335
00:16:29,400 --> 00:16:31,700
they're spending on different 
expenses here. 

336
00:16:31,700 --> 00:16:35,000
We have added in a graph that 
shows the capex that's capital 

337
00:16:35,000 --> 00:16:38,800
expenditures, that's like trucks
and warehouses and different 

338
00:16:38,800 --> 00:16:41,900
physical Goods that they have to
store and build. 

339
00:16:41,900 --> 00:16:44,200
So that is the blue chart hair 
or the blue line. 

340
00:16:44,400 --> 00:16:46,500
Then we have the sales and 
marketing which is the Big 

341
00:16:46,500 --> 00:16:50,200
Orange part hair and you notice 
that sales and marketing, take 

342
00:16:50,200 --> 00:16:54,800
up the huge majority of sales 
forces expenses for the company.

343
00:16:55,100 --> 00:16:57,100
So we have the sales. 
Marketing care in Orange. 

344
00:16:57,200 --> 00:16:59,900
Then the general and 
administrative expense here in 

345
00:16:59,900 --> 00:17:03,400
red, which is not a huge amount.
It's still kind of high but it's

346
00:17:03,400 --> 00:17:05,800
nowhere close to the sales and 
marketing then we have the 

347
00:17:05,800 --> 00:17:07,200
growing research and 
development. 

348
00:17:07,599 --> 00:17:10,000
So if we look at this overall, 
we can look at the sales and 

349
00:17:10,000 --> 00:17:12,599
marketing growth. 
I can filter this out and we can

350
00:17:12,599 --> 00:17:15,000
see that Salesforce as they grow
their revenues. 

351
00:17:15,400 --> 00:17:18,200
They grow their sales and 
marketing spend over time in 

352
00:17:18,200 --> 00:17:21,599
this eats in to their ibadah and
their profitability. 

353
00:17:21,900 --> 00:17:25,000
So Salesforce is saying instead 
of becoming really profitable 

354
00:17:25,000 --> 00:17:27,099
right now by pulling Back on 
sales and marketing. 

355
00:17:27,400 --> 00:17:29,800
We're going to spend more and 
more on sales and marketing. 

356
00:17:30,200 --> 00:17:32,400
We're going to eat into our 
profitability, but we're going 

357
00:17:32,400 --> 00:17:34,800
to have that Top Line growth 
that Revenue growth. 

358
00:17:35,000 --> 00:17:37,900
And as long as they continue to 
have that Revenue growth as a 

359
00:17:37,908 --> 00:17:39,800
consequence of doing the sales 
and marketing. 

360
00:17:40,100 --> 00:17:41,600
I still think it's a positive 
thing. 

361
00:17:41,900 --> 00:17:44,800
But this is an important thing 
to keep in mind because we look 

362
00:17:44,800 --> 00:17:48,000
at this last quarter. 
They spent three point three 

363
00:17:48,000 --> 00:17:50,500
seven billion dollars on sales 
and marketing. 

364
00:17:50,700 --> 00:17:54,200
Three point three seven billion 
and again their total revenues 

365
00:17:54,200 --> 00:17:57,400
last quarter where point for 1 
billion. 

366
00:17:57,800 --> 00:18:03,000
So total revenues 7.4 total 
sales and marketing 3.4 meaning 

367
00:18:03,000 --> 00:18:05,900
that they spent roughly half of 
their revenue on sales and 

368
00:18:05,900 --> 00:18:08,900
marketing, 50% gone to sales and
marketing. 

369
00:18:09,200 --> 00:18:13,000
That is a very high ratio of 
Revenue to sales and marketing. 

370
00:18:13,200 --> 00:18:15,100
It's not the worst. 
There's some companies that they

371
00:18:15,100 --> 00:18:18,100
spend almost a hundred percent 
of their revenues on sales and 

372
00:18:18,100 --> 00:18:20,000
marketing. 
So there's companies that are 

373
00:18:20,000 --> 00:18:22,800
worse than Salesforce at this 
but they are sacrificing half of

374
00:18:22,800 --> 00:18:24,700
their revenues to sales and 
marketing alone. 

375
00:18:24,700 --> 00:18:27,300
So looking at these expenses 
Overall, the idea behind the 

376
00:18:27,300 --> 00:18:30,700
company, the way that this can 
scale and grow their margins is 

377
00:18:30,700 --> 00:18:33,600
over time, the sales and 
marketing should make up a 

378
00:18:33,600 --> 00:18:36,600
lesser and lesser percentage of 
their overall Revenue. 

379
00:18:36,900 --> 00:18:39,200
Because if you look at very 
mature companies, in this 

380
00:18:39,200 --> 00:18:42,100
industry, they have to spend 
less and less percentage of 

381
00:18:42,100 --> 00:18:45,000
Revenue on sales and marketing. 
If we look at an example of 

382
00:18:45,000 --> 00:18:46,900
this, we can look at Microsoft, 
right? 

383
00:18:47,000 --> 00:18:50,800
Microsoft is like a big, huge 
mature version of Salesforce. 

384
00:18:51,200 --> 00:18:53,700
And if we look at their sales 
and marketing, we can filter 

385
00:18:53,700 --> 00:18:55,700
this out last quarter, 
Microsoft. 

386
00:18:55,900 --> 00:18:59,800
At five point six billion 
dollars, so 5.6 and Microsoft's,

387
00:18:59,800 --> 00:19:02,100
total revenue last quarter was 
49 billion. 

388
00:19:02,500 --> 00:19:05,100
So Microsoft didn't spend fifty 
percent of Revenue on sales and 

389
00:19:05,108 --> 00:19:07,900
marketing. 
They spent around 11% And I 

390
00:19:07,908 --> 00:19:09,900
think that over time, the same 
thing will happen for 

391
00:19:09,900 --> 00:19:12,600
Salesforce. 
They'll go from spending seventy

392
00:19:12,600 --> 00:19:16,000
percent of their revenues on 
sales and marketing to 6250 

393
00:19:16,000 --> 00:19:21,000
where they are now to 40 to 30 
20 and so on and as they get 

394
00:19:21,000 --> 00:19:24,000
that as a smaller portion of 
overall Revenue their earnings 

395
00:19:24,000 --> 00:19:27,000
and profitability go up. 
So All in summary on a 

396
00:19:27,008 --> 00:19:29,400
historical basis. 
There is a lot of things I do 

397
00:19:29,400 --> 00:19:32,000
like about Salesforce. 
I like the product, the moat the

398
00:19:32,000 --> 00:19:34,200
switching cost. 
The secular growth Trend. 

399
00:19:34,400 --> 00:19:36,500
I think it's going to be a 
long-term growing company. 

400
00:19:36,900 --> 00:19:38,200
The revenue growth is very 
strong. 

401
00:19:38,200 --> 00:19:40,300
The ibadah growth is strong. 
The free cash flow is the 

402
00:19:40,300 --> 00:19:42,400
highlight of the company. 
It's been growing. 

403
00:19:42,400 --> 00:19:46,200
Its free cash flow on a very 
consistent and Rapid basis. 

404
00:19:46,300 --> 00:19:47,400
The balance sheet is very 
strong. 

405
00:19:47,400 --> 00:19:48,900
There's no problems with a 
balance sheet. 

406
00:19:49,300 --> 00:19:52,400
The part that we don't like 
about the company, is, it has 

407
00:19:52,400 --> 00:19:55,200
very high expenses. 
They rely heavily on their sales

408
00:19:55,200 --> 00:19:58,100
and marketing. 
Team that they take up roughly 

409
00:19:58,100 --> 00:19:59,700
half of what they earn and 
revenue. 

410
00:19:59,900 --> 00:20:02,400
So, very expensive to run the 
company. 

411
00:20:02,400 --> 00:20:05,200
It's not lean right now. 
It's not optimized, and they pay

412
00:20:05,200 --> 00:20:07,300
for those expenses by diluting 
the shareholder. 

413
00:20:07,600 --> 00:20:10,600
They've been doing seven percent
plus dilution year-over-year, 

414
00:20:11,000 --> 00:20:13,900
and that's the other part that 
we don't like, but overall, 

415
00:20:14,000 --> 00:20:16,100
there's some parts that we do, 
like about the company, some 

416
00:20:16,100 --> 00:20:17,500
parts that I don't like about 
the company. 

417
00:20:17,900 --> 00:20:19,600
Now, let's go ahead and talk 
about valuation. 

418
00:20:19,700 --> 00:20:21,800
What I've done is I've ran 
through a lot of different 

419
00:20:21,800 --> 00:20:25,500
models on how to model out the 
future cash flows of Salesforce.

420
00:20:25,900 --> 00:20:28,900
And ultimately what I'm deciding
to pay for those cash flows. 

421
00:20:28,900 --> 00:20:32,300
So this isn't a perfect science.
This is just based on some 

422
00:20:32,300 --> 00:20:34,900
assumptions, but I think it puts
on paper. 

423
00:20:34,900 --> 00:20:37,200
Some of the the future I see in 
Salesforce. 

424
00:20:37,300 --> 00:20:40,900
This is a cash flow analysis on 
the company. 

425
00:20:41,100 --> 00:20:42,600
Let me zoom in here so you can 
see it. 

426
00:20:42,600 --> 00:20:44,300
Now. 
We have Salesforce. 

427
00:20:44,300 --> 00:20:47,300
We have a tenure cash flow 
analysis here. 

428
00:20:47,300 --> 00:20:51,400
So this projects out until 2031 
and then I make some assumptions

429
00:20:51,400 --> 00:20:54,600
based on historical information 
as well as characteristics about

430
00:20:54,608 --> 00:20:55,900
the company, the mode of 
ignorance. 

431
00:20:55,900 --> 00:20:58,500
B, the secular Trends. 
One of those assumptions is, I 

432
00:20:58,508 --> 00:21:02,700
think the revenue will grow on 
an annualized basis around 16%. 

433
00:21:03,100 --> 00:21:07,400
So some years like next year it 
will grow faster 20%, Then it 

434
00:21:07,400 --> 00:21:10,000
will kind of slowed down. 
But overall, if you were to 

435
00:21:10,000 --> 00:21:11,500
annualize it over the next 10 
years. 

436
00:21:11,700 --> 00:21:15,000
I think they can grow at 16%. 
The company has a long Runway of

437
00:21:15,000 --> 00:21:18,700
growth if GDP and the US and 
every place they do business 

438
00:21:18,700 --> 00:21:21,100
continues to grow. 
They can sustain this level of 

439
00:21:21,108 --> 00:21:22,600
growth for a long period of 
time. 

440
00:21:22,700 --> 00:21:26,500
So, I don't think this Revenue 
expectation is Realistic. 

441
00:21:26,500 --> 00:21:27,900
Hopefully, I think it will be 
quite accurate. 

442
00:21:27,900 --> 00:21:30,400
That's the goal here. 
Now, the E bottom margin hair. 

443
00:21:30,600 --> 00:21:33,500
Is you take the revenue and you 
see the percentage of ibadah 

444
00:21:33,500 --> 00:21:37,800
they gain from that Revenue. 
So historically last year it was

445
00:21:37,800 --> 00:21:42,800
25% and I'm assuming 35%. 
Why am I assuming a higher 

446
00:21:42,800 --> 00:21:45,300
ibadah margin? 
Because like I said, I think 

447
00:21:45,300 --> 00:21:48,700
over the next five to ten years 
sales force will gradually 

448
00:21:48,700 --> 00:21:52,200
become a higher margin business.
Their margins will improve as 

449
00:21:52,200 --> 00:21:54,800
their revenue grows and 
outpaces, the gross of their 

450
00:21:54,800 --> 00:21:57,100
sales and marketing. 
And outpaces the growth of their

451
00:21:57,100 --> 00:21:59,900
dilution. 
And as that happened there even 

452
00:21:59,900 --> 00:22:03,300
a margins should improve over 
time give different comparable 

453
00:22:03,300 --> 00:22:05,700
companies. 
Microsoft has an even a margin 

454
00:22:05,700 --> 00:22:10,100
of, like, 49% way higher than 
what this assumption even is. 

455
00:22:10,500 --> 00:22:13,200
Google's is way higher as well. 
Facebook is way higher, even 

456
00:22:13,200 --> 00:22:15,800
apples is at 40% and their 
hardware company. 

457
00:22:16,200 --> 00:22:19,600
So I don't see it as unrealistic
to assume that a software 

458
00:22:19,600 --> 00:22:23,000
company that has a scaling 
product can grow, their ibadah 

459
00:22:23,000 --> 00:22:25,200
margins to a large extent over 
the next 10 years. 

460
00:22:25,500 --> 00:22:27,900
And I think, They'll do that on 
a very consistent basis. 

461
00:22:27,900 --> 00:22:31,000
So, last year, it was 25% at the
end of 10 years. 

462
00:22:31,000 --> 00:22:33,400
I think it will be above 40 
percent annualized. 

463
00:22:33,400 --> 00:22:36,800
I think I'll be around 35%. 
Now when I plug these numbers in

464
00:22:37,000 --> 00:22:40,600
what this does is it projects 
out based on my assumptions the 

465
00:22:40,600 --> 00:22:43,500
growth rate of these things over
the next ten years so I can see 

466
00:22:43,500 --> 00:22:45,300
what my revenue is going to be 
for Salesforce. 

467
00:22:45,300 --> 00:22:47,300
At the end of twenty Thirty one 
right there. 

468
00:22:47,600 --> 00:22:51,100
It's 93 billion dollars and then
I can see what the ibadah will 

469
00:22:51,100 --> 00:22:53,800
be at the end of twenty Thirty 
One based on that, ibadah 

470
00:22:53,800 --> 00:22:55,700
margin, so that will be thirty 
two billion. 

471
00:22:55,800 --> 00:22:59,200
Ian 800 million now, because 
ibadah stands for the earnings 

472
00:22:59,200 --> 00:23:02,500
before interest taxes 
depreciation and amortization. 

473
00:23:03,000 --> 00:23:05,700
We have to add that stuff back. 
Otherwise, our model wouldn't be

474
00:23:05,700 --> 00:23:08,400
correct. 
So we have the capex margin 

475
00:23:08,400 --> 00:23:10,100
here. 
This is the percentage of 

476
00:23:10,100 --> 00:23:13,400
Revenue spent on capex, which 
includes that depreciation 

477
00:23:13,400 --> 00:23:16,600
amortization and capital 
expenditures, but then we also 

478
00:23:16,600 --> 00:23:20,100
have to add back in the taxes 
which I'm using a flat effective

479
00:23:20,100 --> 00:23:24,100
tax rate of 14%. 
So I calculate that in as well. 

480
00:23:24,100 --> 00:23:25,700
That's not right here as a 
variable. 

481
00:23:25,800 --> 00:23:30,200
And then, at the end of this, 
what we should have is, we have 

482
00:23:30,200 --> 00:23:33,700
the ibadah projections here. 
We have our Capital expenditures

483
00:23:33,700 --> 00:23:35,400
here and how much we're spending
on that. 

484
00:23:35,400 --> 00:23:38,300
We have our effective tax rate, 
that's right here. 

485
00:23:38,300 --> 00:23:42,200
And then at the end we have a 
number that is the accumulative 

486
00:23:42,200 --> 00:23:45,000
calculation of this. 
So we have our ibadah 

487
00:23:45,000 --> 00:23:48,400
subtracting out our Capital 
expenditures subtracting out our

488
00:23:48,400 --> 00:23:51,700
tax rate and then we have the 
number left over which is our 

489
00:23:51,700 --> 00:23:54,400
free cash flow line. 
So right here, we have the cash 

490
00:23:54,400 --> 00:23:56,300
flow. 
That is the Cash flow of the 

491
00:23:56,300 --> 00:24:00,300
company and in 2031, 10 years 
from now, I'm projecting 27 

492
00:24:00,300 --> 00:24:03,100
billion, 279 million dollars in 
free cash flow. 

493
00:24:03,300 --> 00:24:05,500
That's what this project sit. 
The company will produce some 

494
00:24:05,500 --> 00:24:08,100
free cash flows at the end of a 
10 year basis. 

495
00:24:08,500 --> 00:24:11,700
And then what you have to decide
is if we've modeled out, that 

496
00:24:11,700 --> 00:24:13,600
the company is going to create 
that much cash flow. 

497
00:24:14,000 --> 00:24:16,200
Now, we gotta decide how much 
were willing to pay for those 

498
00:24:16,200 --> 00:24:17,500
cash flows. 
What do we think? 

499
00:24:17,500 --> 00:24:19,900
The market will be willing to 
pay for the cash flows? 

500
00:24:20,500 --> 00:24:22,200
Assuming these assumptions are 
correct? 

501
00:24:22,400 --> 00:24:25,700
And what I did was I looked at 
the current price differences. 

502
00:24:25,900 --> 00:24:29,300
Cash flow of Salesforce and it's
very high. 

503
00:24:29,400 --> 00:24:32,700
It's around 40 and they're not 
going to keep it that high. 

504
00:24:32,800 --> 00:24:36,400
So as they grow and mature in 
the company stops growing, quite

505
00:24:36,400 --> 00:24:40,700
as quick at the end of 10 years,
the price to free cash flow will

506
00:24:40,700 --> 00:24:42,900
contract over time. 
I really believe that. 

507
00:24:42,900 --> 00:24:45,500
I think it will be something 
that you want to price in. 

508
00:24:45,900 --> 00:24:48,800
So what I did was I looked again
at the end of story of matured 

509
00:24:48,800 --> 00:24:51,200
companies and I tried to 
understand it. 

510
00:24:51,200 --> 00:24:53,800
This meaning that I try to be 
very conservative with these 

511
00:24:53,800 --> 00:24:57,900
assumptions and if I attach a 
Price to free cash flow of 15. 

512
00:24:58,200 --> 00:25:00,900
This is what this model spits 
out. 

513
00:25:00,900 --> 00:25:03,700
What I did was I built a stock 
purchase distribution. 

514
00:25:03,700 --> 00:25:06,200
Chart here. 
This shows you the current price

515
00:25:06,200 --> 00:25:07,600
of the company. 
Right now. 

516
00:25:07,600 --> 00:25:11,500
It's selling for 175, a share. 
And based on these conservative 

517
00:25:11,500 --> 00:25:14,100
assumptions. 
I should be earning an 8 point. 

518
00:25:14,100 --> 00:25:16,500
8, 7% return, if I bought it 
today. 

519
00:25:16,900 --> 00:25:21,700
Now, if the price goes down 5%, 
and I can buy at 167, then my 

520
00:25:21,700 --> 00:25:23,700
return goes up as the price goes
down. 

521
00:25:23,700 --> 00:25:25,500
And the Assumption, stay, the 
same, the future. 

522
00:25:25,800 --> 00:25:29,700
Did return goes up. 
It goes down. 10%, 2158. 

523
00:25:29,700 --> 00:25:32,200
You could buy it for this price 
based on these assumptions. 

524
00:25:32,400 --> 00:25:34,500
It should be a 10%, annualized 
return. 

525
00:25:34,800 --> 00:25:37,600
Then if you could get it for 
150, the return should be ten 

526
00:25:37,600 --> 00:25:40,300
point six, five percent and 
likewise. 

527
00:25:40,300 --> 00:25:44,300
If the price goes up 5%, if we 
see it at 180 for your returns 

528
00:25:44,300 --> 00:25:47,200
go down and ten percent returns,
go down to seven point eight. 

529
00:25:47,400 --> 00:25:49,700
If it goes up to 200 and $2 a 
share based on these 

530
00:25:49,700 --> 00:25:51,800
assumptions. 
The return would be seven point 

531
00:25:51,800 --> 00:25:55,200
three six percent annualized but
as of right now based on the 

532
00:25:55,200 --> 00:25:57,400
current Rice. 
And these assumptions, I should 

533
00:25:57,400 --> 00:26:00,900
be getting an eight point eight.
Seven percent return on what I 

534
00:26:00,900 --> 00:26:04,900
believe again are intentionally 
somewhat conservative 

535
00:26:04,900 --> 00:26:07,200
assumptions, but I'm trying to 
tilt this model more 

536
00:26:07,200 --> 00:26:09,200
conservative. 
For example, if I want to be 

537
00:26:09,200 --> 00:26:12,400
less conservative with my 
assumptions, I could plug in 

538
00:26:12,400 --> 00:26:15,300
something like a 20 price to 
free cash flow exit. 

539
00:26:15,600 --> 00:26:18,200
So if we assume investors are 
going to pay a 20 price to free 

540
00:26:18,200 --> 00:26:21,300
cash flow, that changes the 
assumptions quite a bit. 

541
00:26:21,300 --> 00:26:24,200
They go from eight percent 
return based on today's price to

542
00:26:24,200 --> 00:26:27,900
12 percent annualized and that's
a Very good return for a company

543
00:26:27,900 --> 00:26:30,000
like this. 
And if you think that these are 

544
00:26:30,000 --> 00:26:32,600
even aggressive assumptions that
20 price to free cash flow, 

545
00:26:32,900 --> 00:26:35,700
Microsoft right now, trades a 
day. 34. 

546
00:26:36,000 --> 00:26:40,100
So Microsoft is out of 34 
currently even being as big and 

547
00:26:40,300 --> 00:26:42,900
slow growing as it currently is 
Salesforce is growing much 

548
00:26:42,900 --> 00:26:44,600
faster. 
So when I say that 15 is a 

549
00:26:44,608 --> 00:26:47,000
conservative assumption, I'm 
basing that on a lot of other 

550
00:26:47,000 --> 00:26:48,800
companies. 
Now just a disclaimer regarding 

551
00:26:48,800 --> 00:26:50,400
this discounted cash flow 
analysis. 

552
00:26:50,700 --> 00:26:53,800
I think it is important to model
out your future assumptions for 

553
00:26:53,800 --> 00:26:57,200
the company, but a lot of people
View discounted cash flow 

554
00:26:57,200 --> 00:27:00,700
analysis as the law and it 
determines whether or not you 

555
00:27:00,700 --> 00:27:03,400
should buy a company and exactly
what price you should buy it. 

556
00:27:03,600 --> 00:27:05,100
And I don't really view it. 
That way. 

557
00:27:05,300 --> 00:27:07,900
I think it is important to do it
as somewhat of a sanity. 

558
00:27:07,900 --> 00:27:10,500
Check the plug in your 
assumptions and make sure that 

559
00:27:10,500 --> 00:27:12,700
they make sense in regards to 
what you're paying for a 

560
00:27:12,700 --> 00:27:15,000
company. 
But having said that, there are 

561
00:27:15,000 --> 00:27:17,500
other major considerations that 
need to be made. 

562
00:27:17,500 --> 00:27:20,800
When buying a company, the mode 
of the company, the leadership, 

563
00:27:20,800 --> 00:27:24,400
the secular growth, the products
and services that it sells the 

564
00:27:24,400 --> 00:27:27,300
switching costs, right? 
The qualitative aspects of a 

565
00:27:27,300 --> 00:27:30,600
business that you're buying our 
Paramount, they're incredibly 

566
00:27:30,600 --> 00:27:33,100
important. 
So while I use modeling and 

567
00:27:33,100 --> 00:27:36,800
discounted cash flow analysis as
one tool and a tool belt, that's

568
00:27:36,800 --> 00:27:39,700
the way that I view it. 
One tool to help aid in your 

569
00:27:39,700 --> 00:27:43,100
overall research process and I'm
doing it for every company. 

570
00:27:43,100 --> 00:27:45,300
I'm trying to Value every 
company to reasonable 

571
00:27:45,300 --> 00:27:49,500
expectations, but I also want to
own the absolute best companies.

572
00:27:49,700 --> 00:27:53,700
I want to own the best companies
at a fair or reasonable priced, 

573
00:27:53,800 --> 00:27:56,500
or better yet undervalued. 
That's what I'm trying to do 

574
00:27:56,500 --> 00:27:58,500
with this portfolio. 
So Salesforce is one of the 

575
00:27:58,508 --> 00:28:00,600
companies. 
I outline, it's one of the best 

576
00:28:00,600 --> 00:28:04,100
stocks one of the best companies
in the market and my valuation 

577
00:28:04,100 --> 00:28:06,800
of it shows right now that it's 
reasonably valued. 

578
00:28:07,100 --> 00:28:10,300
It's not heavily undervalued. 
It's not an absolute still but 

579
00:28:10,300 --> 00:28:12,900
it is reasonably valued. 
So that's my thoughts on it. 

580
00:28:12,900 --> 00:28:15,200
I hope you enjoyed this video. 
If you want to check out more 

581
00:28:15,200 --> 00:28:18,600
exclusive content, get access to
a Discord Community or you want 

582
00:28:18,600 --> 00:28:21,300
access to Quality trim. 
We are about to push another 

583
00:28:21,300 --> 00:28:23,300
major update. 
That has a lot of changes. 

584
00:28:23,700 --> 00:28:25,400
You can join the patreon. 
It comes with a free. 

585
00:28:25,700 --> 00:28:26,900
Aisle. 
There's no bait and switch. 

586
00:28:26,900 --> 00:28:29,400
There's no up selling. 
There's no ads your price never 

587
00:28:29,400 --> 00:28:32,000
changes. 
It's easy to join and cancel. 

588
00:28:32,000 --> 00:28:34,000
I think you'll really enjoy it. 
So, check that out. 

589
00:28:34,000 --> 00:28:35,800
There's a link in the 
description for the patreon. 

590
00:28:36,100 --> 00:28:37,600
Other than that. 
I'll see you in the next one.