CRM值得买入；软件周期触底及AI产品增长支撑其上行至约456，尽管专业服务需求和长期平台可替代性存在担忧。

Salesforce has another day in the sun.

Salesforce is doing great. The cues are fine.

So with all that said, I do want to take a look at Salesforce. I haven't done that yet. So we've had a thesis obviously on the software cycle bottoming out. we won't belabor Salesforce, but I do want to look at Salesforce because I do think that as we've been calling for a software bottom in in 2000 in Q3, Q4, it's happening. 10 Q earnings report.

Salesforce. Uh this is uh 11345 divided by 10236 10.8% year-over-year total revenue growth. It's not actually that much. But the point is it was left for dead. People thought I think you know people thought AI would drive CRM negative. So even 10.8% 8% stable growth is uh is better right so than expected uh expectations have been uh dead low.

The margins on this product uh at Salesforce are just incredible. 10820. So that is 2021 divided by 10820 I've got 18.6% 6% cost structure professional services is a little bit of sort of a money loser here but I mean nominally and so if I look at the underlying product cost here divided by 9690 16.9% cost so the margins actually fell a little bit uh margins did compress a bit

if I look at restructuring. You could really add this back in. And so if I add that back in, I'm looking at operating expenses of 6365 minus 94 6271 / 5662 equals literally 10.8%. So their opex matches rev growth. Their total cost of revenues including their more expensive professional services grew by 18%. Uh 18% uh increase on costs. So that is some PP shrinkage. This is the margin. So I'm going to call it I'm going to reward this to 81.4% gross margin here. And then the net margin at the company, see like the expectations were so bad. Even though PP is shrinking, the stock still skyrocketed. Uh net income is 3526. I'm gonna add in uh restructuring plus 94, but I'm going to take out other income minus 81. That really doesn't make much of a difference. So, I'm going to go 3539 restructuring in other income out 3539 divided by topline rev. They have a net margin of 31%. Very good. That's very good. I mean, that's that's like a 26 peg justification, right?

CRM. Okay. CRM. Okay. So forecast 1671 which is actually expected to decline next year. That's weird. Uh 1671 forecast EPS Jan 27. That puts us at a peg at 261 divided by 16.71 equals 15.6 peg ratio. Growth expectations are -4.69 1574 1685 1414 that works out to divid 4 works out to about 10.5%. That means we are trading for a PEG ratio 1.48 PEG. 2.6 is justifiable at these margins. price target of about 456 is is fair, you know, and and then obviously, you know, if it gets to 456, it probably momentum's past that.

Cash flow so far, their buyback really paid for itself. This right here. Yeah. See, they didn't recent. They have no more They had no more money left to go do buybacks. So they didn't cuz they didn't have to. They already fueled the bottom basically. Smart. Oh, what a bet. What a freaking bet.

Capex. So free cash flow of about a billy here. Uh and and this is lumpy, right? So free cash flow should be around 15 bill for the year. Uh, lumpy though with renewals and 15 billion. What's the market cap? ... Market cap is 213. 15 divided by 213 7% cash flow yield. That's still really good. still very good. And and even at even at twice the price, it's still a 3.5 cash flow yield. Still better than Cyber or Palunteer. Really shows how they've been, you know, left for dead.

cash flow should be around 15 bill for the year. Uh, lumpy though with renewals and 15 billion. What's the market cap? So, oh man, Nvidia keeps going down and so are the cues.

Unearned rev accounts payable got 7 billion in bills. Okay. Enough cash to pay bills at 8.3 versus 7.5. Long debt is 39 41 + 4 about 45 45 bill about 25 bill of that was used to buy the dip at bottom around you know 191 close to accounts receivable 9 billion over here 9 bill in uh receivables and marketable securities.

Uh, I don't think they're in a rush to pay off their debt. Let me see if I could find their debt. I mean, they just took on the debt, Disagregated Revenue Agent Force Headless. Okay, here we go. So this is the headless headless platform which is in part what they're doing with anthropic like claude partnership where you know you don't have to log into Salesforce you could access it through other uh programs that part of the business is growing 20% growth on headless whereas the growth on the agent force apps themselves is slowing on agent force. So you can see uh the growth from AI versus destruction from AI. That's actually very interesting. So that's growth from AI.

And then if we go here, bookmark that RPOS, blah blah blah, debts, maturities, those are their marketable securities. I don't care about that. RPOS, blah blah blah, debts, maturities, those are their marketable securities. I don't care about that. amortization expense debt. Here, here are their notes. Oh, dude, they laded this out. Oh, let's go. That's great. Look at this. I've got date of issuance. These are the last ones they issued. So, their debt is all about 5% 5 to 6% their new debt. So, that's a premium. That's a 20-year note right there. That's a premium of what is the um what was the 20-year Treasury in March? The 20-year Treasury in March. We could calculate the spread that they paid and kind of see like, you know, what did the bond market say?

So, in March, we were about 5%. 4.9. I'll go with an average of about 4.9. Okay. So 4.9 4.9 for 20 year in March about that means the premium they paid for 20 years 6.4 minus 4.9 paid about 1.5%. Premium spread uh over risk-free rate. I mean that's not that bad. So that's their debt.

Let's see if they gave any other notes on the share repurchases should kind of be behind them. Did they give any notes on revs? Let's see. Management. Okay. Increase in subscription and support driven by new business which includes new customers, upgrades, and additional subscriptions from existing pricing was not a significant increase in revenue. That's good because you want to hook people in, you know, hook people in now, raise prices later. Probably their thesis, right?

Uh let's see here. Subscription decrease in professional services. uh decrease in professional services was primarily due to less demand for larger multi-year transformations. Interesting. Which may continue in the near term. That's sort of a red flag. A red flag. So the red flag here flag is if big transformations are slowing down then you're monetizing the existing sponge not necessarily growing the sponge. Thank you. Um, so something to watch, right?

Okay. And Headless is only 34% of their business right now. You can see that right here. Uh, Headless 34% And I think a lot of that is happening right now. Okay, cool. All right, so we kind of got an idea here on Salesforce. We could take a peek at their earnings call in a moment, but let me mark this as the income statement and the projection we've done on their valuation. I'll pull up their earnings call. Salesforce is green. The cues are tanking.

CRM's obviously doing well.

Okay, interesting. Let's go take a peek. Now I'm going to put some bookmarks in the Salesforce earnings call.

Let's go look at the uh Salesforce uh earning call summary. Uh we're here at the Salesforce in San Francisco. I want to welcome you all. Blah blah blah. Salesforce. Uh that's why I'm so excited about cloud for Cloud Force.

Best of both worlds. for combining Claude's extraordinary intelligence and reasoning with Salesforce's trusted data. And while Claw Force Claude might have been, for example, for developers, it's now that for knowledge workers and when you do that uh you get something the world has never seen. Deeply personalized interface uh that reasons. It's truly a game-changing experience for our customers. Yeah. For now. uh for now.

Uh it's a sponge issue, right? Like are you squeezing out that sponge too hard? Okay, Dreamforce customer started the Agentics journey with Salesforce.

Uh let's see here. The only thing I need to do is convince every single customer why Mark is on the road from time to time. What? Blah blah blah. Janty Journey blah blah blah. Okay, boring.

Slackbot. This is probably why they came up with Grobbot, honestly. Which is also kind of cool. Everybody's going to end up having a bot.

Okay, so this is Slack continues to sign Q2. Slack was the uh fastest quarterly growth since acquisition. Really? That actually surprises me.

AI innovation across the platform is delivering measurable value. Agent Force hit 1.5 billion. Slackbot and headless launches continue the AI momentum. Upgrades to our premium Slack editions have tripled since we launched Slackbot. Wow. Selling Slackbot AI triple premium upgrades. And then we have fastest growth since acquisition. It's actually incredible. Yeah, we need to meet Kevin Bot. Exactly.

So, can we get a Fed day boom if he comes out doubbish after being hawkish today? Depends on what the next CPI report is. Yeah, we kind of shifted the catalyst a little bit, huh?

So, okay. Well, that's good. Uh, solid AI growth, you know, that's more than the sponge. So, that's that's optimistic. Uh people finance are builders. People are builders. Uh be able to use natural language. Blahy blahy blahy what's whatever. Yeah. So philosophy is we no shortage of replete apps that we're building on top of Salesforce.

Yeah. There generally never a shortage. There generally is never a shortage of apps. There's a shortage of good apps and and good value. Like I think there's a lot of value in the fact that you know when you get the M Kevin app you could get the alpha wire and a bunch of the other features that we have in there. Uh there's some really cool stuff in there. No shortage of applets.

Blah blah blah. No shortage of blah. Okay. Okay. Utilization. All right. That's fine. It's replete and headless. Fine. Surface area is changing. Uh, everyone has logged into Salesforce. But if you think about Legorans logging into Salesforce and the traditional interface, the answer is it's changing every single day. Split by RO. The service area is expanded. Logging into Slack, they're engaging via Slack. So, we're expanding.

updates going to Salesforce or pipeline. And our AI is handling busy work. That's AI jobs. But the human layer adding judgment. That's sales on top, right? Yeah. H like basically easy interface uh interface for humans to get the data they need. You know, lookup function is BS anyway and tedious.

Uh and then humans make decisions. Yeah. The limiting factor for AI is, you know, how many decisions do humans really have to make, right? Like, you know, I don't need to ask AI what shoes I need to wear today. There are only so many business decisions or document decisions I actually need help with at any given period of time. Uh, and and that's true for for most businesses. I'll write that down. limiting factor.

All right, I already have to go to the bathroom again. Job is not to legalize work. It's done. Scale to an organization 50 markets. Finance, security, compliance. AI created the CFO. Fine. Scale at organization. AI helps roles scale. That's fine.

Lorra is the fastest software company with a salesforce to go from 1 million to 100 million ARR. We did it in less than 18 months. Cannot afford to change our CRM again.

Okay, I want to know a little bit more about this. This is Legora for legal professionals. Okay. So this is legal works without limits. Collaborative AI for exceptional lawyers. Oh, okay. Solutions litigation. Let's see. Streamline your litigation process. And this just looks like chat GPT. It literally does. Provide a case summary. identify and analyze core legal issues. I mean this is literally like a GPT. Uh but see but they have the the integration of all the documents.

Okay. So do they just have like an app on uh let's see Salesforce Legora app? Let's just say Legora and it the connection between stems from a massive $500 million series D fund raise which was backed by Salesforce Ventures.

Okay, Salesforce Ventures. Is that it? But what does that have to do with Oh, I see. Legora describes Salesforce as their sort of system of record. Okay. Is if is that if that's true? I mean, is that what they have here?

Let me see. Lora with Salesforce. Yeah. Fastest software company with Salesforce. That's what they're saying. So, they're saying they use Salesforce.

Lora sees AI as a capacity expander. I agree with that. We can now take on more. They can now take on more work. Yeah, I agree.

Legorans logging into Salesforce in the traditional sense basically. No. Right. So idea is uh people use Salesforce through chat app rather than uh traditional CRM apps which is actually that's where we're seeing the growth too.

Okay. They're unlocking value where they've never had it before. So much for the sass apocalypse. That concludes our pre-show. Okay. Lorra now zero going deep with agent force. Lora employees work with claude and GPT every single day. They built with cloud code. Cloud code. Now these are different reasoning engines, entirely different interfaces, but underneath three different trusted foundations, Salesforce.

Okay, interesting. So basically, you know, in the earnings call, Salesforce suggests they're the foundation for uh Zero, Lora, and uh a replace. Why do they keep Salesforce though? I guess that it's it's probably like the headache of of moving the data at all the CRM, but I feel like AI, but why do I feel like AI could just move all the data to their own CRM? I don't know. You know, I I would almost call that just still a little bit of a red flag. So, I'll call that my my Kevin's red flag.

Okay. So, so Zero's an accounting service. I see. Okay. with 5 million subscribers. Agent Force enables real-time customer support at scale.

Ah, okay. Okay. Okay. That helps. So, zero uh accountants uh finance uh platform 5 million subscribers. agent for uh handles customer support at scale.

Okay. Then you've got Legora uh uses Salesforce for audit trails and governance apparently. So compliance it sounds like compliance and then uh Reply is using it for sales. Okay.

So h I still don't know you know why not just rebuild uh with you know clawed code that underlying uh compliance or you know CRM I mean So far that's not happening. That was the fear. Uh that was the OG fear. That was the original fear that led uh the company stock to tank.

So you know while now it's rerating up software bottoming it doesn't eliminate the fear. I I think that fear is still kind of there that that that could happen. Okay, what else? So that's I'll call that my red flag. First seven months, clear central file tickets marketing operation blah blah blah.

A lot of these companies honestly are probably focused so much on grinding revenue right now they don't have to optimize yet. Legora for example can probably optimize for revenue right now instead of uh perfecting their costs for now. That's probably a bit of what's going on.

Uh, okay. Then critical word, sales force, system of record, blah, blah, blah. Okay, we've heard that said many times now. capabilities, accounting, payroll, agent force, many questions answered instantaneously. 62% deflection. I mean, yeah, we know chat bots are useful.

And then SAS apocalypse. Okay. I mean, yeah, that gives us color on Salesforce here. So, we kind of understand what's going on. There's just it's just too early to actually care about that disruption when you can probably monetize a lot more with artificial intelligence and focus on you know optimizing for growth right now and worry about the costs later. That's probably it which you know gives software a good rally opportunity but those issues will remain and at some point you know continue to be a concern even for a company like Palanteer in the long term that'll end up being a question.

You can go type in Salesforce for example, and then you can kind of get a fair value uh note on this. You can see some of my notes on it. Uh balance sheet, pricing, power, moving average, whatever.

That's kind of aligns with this announcement that they made regarding Claw Force, that Claw Force runs Salesforce headlessly through Claude. So Claude gets direct governed access to data 360, Tableau, Slack, all your Salesforce crap without leaving the chat.

Let's uh let's write down other companies that are like that. So there's Salesforce Uh, so you know that's like a CRM now you know co-pilot you could say co-pilot by MSFT

Shares of Salesforce rocketed 23% on Thursday, leading to recovery for many beaten down software names, including these others. After Salesforce B, the rally signals a striking change in sentiment for the sector which has been slammed.

I actually agree with that. The Salesforce numbers weren't that good. They're not wrong about that. It wasn't like I mean as we just went through the numbers we're like uh okay like they're they're okay and like you know I I'm in Salesforce so in fairness like I should be really happy but I just like a little tempered on the enthusiasm when I actually go through the numbers.

Uh Salesforce is projecting a slight pick up in the second half in organic growth. signing new business. Uh, signing new business or persuading existing customers to spend more. Yep, that was in our uh 10Q as well. We saw that.

software has gotten so cheap that there was a point where Salesforce stock, which we have exposure to, we sent a buy alert out on Salesforce specifically when it was about $165 because it had about a 13% free cash flow yield.

And Mark Beni off literally raised $26 billion of debt to buy back $25 billion of stock at about $191. So we looked at that setup and we're like, this thing's trading for like a 0.9 peg. Uh that's a price to earnings growth ratio. We can buy it at 165 for less than what the CEO just bought it back for.

even though the bottom's not in yet, when it comes, it'll probably be pretty aggressive given how cheap the valuation is. And so Salesforce is just an example of that bottoming happening in software.

But it's not just Salesforce that skyrocketed. I mean, you can see when we bought at around 165 in this lower range over here, it fell more. It fell down to 146. But we since the the third quarter roughly the third quarter which started right here in July since the third quarter we had this almost perfect rise in not just Salesforce but another one that we own of exposure to which is Palunteer.

when you look at margins for companies whether it's at Salesforce or at UiPath or at Palunteer tokens are increasingly costing these software companies money as they integrate tokens into the services that they're offering.

I've got Salesforce with a fair value of 458, which is still a double from here.

So and keep in mind we own Salesforce. keep in mind we own Salesforce. We're exposed to Salesforce, exposed to Palunteer. Like we're up on these. We're really excited about them.

Salesforce is telling us that their primary increase in revenue came from new business, which includes not only new customers, but also additional subscriptions from existing customers. that pricing was not a significant driver for revenues. Now, that could cut both ways. I could say we're going to hook people now and raise raise prices later, or we could argue that we didn't want to take pricing because we didn't want to get people to cancel and leave us. They didn't want the attrition. So, you don't take pricing and you just try to sell people more AI features without raising prices on the on the existing. That might be a sign of weaker pricing power. That is important.

In addition to that, uh they say here there was a decrease in the spend for professional services. Uh which you could see right here about a 4% decline in professional services. Why? Because there was less demand for larger multi-year transformations.

In my opinion, that's a red flag. That's a sign that what you're doing is you're basically taking this existing sponge and you're like, "We won't raise the prices because we don't want to lose them, but let's offer them more AI stuff and squeeze the sponge."

And to me, that kind of aligns with this announcement that they made regarding Claw Force, that Claw Force runs Salesforce headlessly through Claude. So Claude gets direct governed access to data 360, Tableau, Slack, all your Salesforce crap without leaving the chat.

I kind of call this the palunteering of your data. You have one layer that where you can interact with all this data and you get fed what you need when you need it. That's good because it's all in one place and then it reduces the lookup time for you actually trying to find data, update data, process data, and it lets you focus on making the decisions.

Obviously, there's a limit for how many decisions you really need to make, but you know, to me, this is good. It makes you more efficient when you do need data to make those decisions. Okay, cool. So, what does that mean? Well, what it means is if you're not really growing, are you really justifying these massive moves up in price?

Probably for now. It doesn't mean it's going to last forever. At some point, companies might end up sort of, you know, if you're operating through claw force. Uh, you might end up just rebuilding the Salesforce stack, which is literally the reason all of these companies ended up selling off in the first place.

Everybody thought people were just going to vibe code away the Salesforce and they won't need Salesforce anymore. Right now, that's not true. But those seeds of pain still exist.

The good news is the company got really cheap and even though they barely beat the stock skyrocketed that operating margin came in at 34.1% versus 33.6%. That was a beat but RPO RPO remaining performance obligations only grew 14% which was a slight miss. Subscriptions beat but only by 28 basis points. So forecast for Q3 also beat at 11.46 billion, but only a 35 basis point beat.

So it's like these weren't really good earnings in terms of expectation versus reality. I think what happened is the reason we had these large candles is because these have gotten too cheap. They have gotten too oversold in the SAS apocalypse.

So let's look at the valuation for the company. You know, what's a company like this actually worth? Well, let's look at the income statement. So, if we look at the income statement, we can actually see that gross margins compressed a bit. We went from gross margins at 80, this is this would be 83.1%. Once you minus one on it, 83.1% compression down to 81.4%. Gross margin declined. Therefore, revenues are only growing at 10.8% year-over-year. Stable, better than obviously shrinking, but their costs went up 18%. So, you have shrinking PP here.

And again, I'm saying this like I have this tendency of being critical, like really critical of the things that I'm exposed to. I should just be the hypeman, right? But but I also want to look at the red flags because that's the reasonable thing to do.

So you know when it's time to get out anyway, they're bringing 31% down to the net, which is really good. When you're bringing 31% down to the bottom line, $3.5 billion out of 11.3 billion, you deserve like a 2.6 peg.

And so if we actually do the valuation on that add a 2.6 peg times 10.5% projected EPS growth over the next four years times their earnings per share projected January at the end of the year 1671. We get to a valuation of mid 400s and honestly it could probably reasonably hit the mid 400s and then just momentum boom past that.

If you momentum boom past that that's when you a stop allocating and b maybe you set a trailing stop and it's time to get out. But like why get out now? It's you're so early in the process. This thing's this puppy's just starting to boom, right?

Legora uses Salesforce for audit trails and governance and compliance, blah blah blah. the underlying concern that these companies and in the future can still optimize and replace Salesforce exists and going you know headless to integrate into claude kind of suggests that those underlying issues aren't going to go away and if there's ever a recession you know that's going to be the time maybe that the companies are like all right it's time to optimize for costs you know where can we cut

But another thing is at some point the growth from introducing artificial intelligence products slows as well. If we go back over here, I want you to see growth from AI is right here. It is growing right now faster than the core business. The core legacy business is right here. So, I'll highlight it in orange. Agent Force apps, Agent Force only grew 7.6% year-over-year. The headless and the data 360 AI stuff that grew 20%.

So, you are getting more gains right now from selling those AI products to the existing customers. As long as that keeps growing, you could keep seeing this stock go up. That's my expectation. Once that growth starts slowing down, that becomes your bigger red flag.

So that's the income statement. Uh that's where the income's coming from. If you look at the balance sheet, we do have long debt, $45 billion, mostly financed at about one and a half% greater than treasuries. That's your spread, your yield spread. And then about 25 billion was used to uh buy the dip on their own stock at about $191 per share.

They have enough cash to pay their bills and their cash flow yield is still good. They are yielding about 7% right now. And even if this stock gets fully priced at about $450, it would still yield a 3.5% cash flow yield, which is way better than the 1-ish% that Palanteer yields or the less than 1% that uh CrowdStrike yields.

Can it keep going? Like is it too late to get into Palunteer or Salesforce? My opinion the answer to that is no. I think these guys can still go.

But if you're going to get into those stocks, you have to look at them as they still have underlying red flags. some of the ones that you should pay attention to. Obviously, we've talked about here. Uh those are the ones that I'm paying attention to. You might have your own red flags that you look at. Uh and and that's how you can have an exposure to this while still being uh careful, if you will. It's still an investment, right? Don't get married to it.

Salesforce still up 3%.