Salesforce (NYSE:CRM) is down 1.5% year-to-date. That may not sound too bad, but compared to its most recent gains of up to 11% in February, a different story unfolds. The most recent fall for CRM stock began in February amid the general re-opening trade and resulting tech wreck.
Long-term investors should see the fall of CRM stock as a buying opportunity. But expecting a repeat of the last five year’s gain of nearly 180% is asking a lot. Just as the market is rotating toward recovery plays, so too CRM stock holders are rotating, from short-term speculators in capital gains to long-term holders with retirement on their minds.
That’s because, with over $21 billion in sales during the fiscal year ending in January, Salesforce is reaching maturity. The easy gains of taking new clients to the cloud are ending. Now comes the hard slog of competing against other cloud giants.
Few companies are as ready for that competition as Salesforce.
A Sea of Concerns
Salesforce was founded in 1999, and co-founder Marc Benioff remains at the helm. But Father Time is undefeated, and Benioff has Time Magazine on his plate now, as well as charitable interests. Succession is always a question at big companies, and Benioff seems to have tapped Bret Taylor as his replacement. Taylor, 42, came to Salesforce with Quip, a mobile productivity suite, in 2016.
Salesforce corrected nearly 10% in the month after its January earnings report. That quarter looked very good, with sales and gross profit both rising about 20%. The company is forecasting fiscal 2022 revenue of $25.65 billion, a gain of about 21%.
Three years after moving into its San Francisco office tower, the city’s tallest building, Salesforce is now dropping office space in a declining market. It found during the pandemic that its claims the cloud would let you work from anywhere were true. It’s now adapting to its own reality, letting some workers stay home permanently.
Much of Salesforce’s growth now comes from buying other companies, which is expensive. Its latest deal, buying Slack (NYSE:WORK) for $27.7 billion, exhausts its cash and dilutes its stock.
A Sea of Opportunities
To get on top of these problems, Salesforce has been investing in other companies, becoming an efficient late-stage investor. In its most recent fiscal year, this meant a $2.17 billion cash gain in the fourth quarter alone. It was highlighted by a big gain in Zoom (NASDAQ:ZM) after Salesforce invested in its IPO.
More will soon be coming after Okta (NASDAQ:OKTA) buys Auth0 for $6.5 billion. Salesforce had led a funding round at $1.92 billion for Auth0 just eight months before.
Is Salesforce a Mistake?
I got in, then out of CRM stock over the New Year, booking a small profit, which I put into ServiceNow (NYSE:NOW). So far that has proven a mistake. ServiceNow was hit harder than Salesforce by the correction, and that investment is still out of the money.
But there’s a difference between speculating and investing. That difference is time. When you buy-and-sell within a year, you’re either admitting a mistake or speculating. The way to making money is to get into what’s growing and just stay in it. Give management a chance.
The Bottom Line on CRM Stock
The cloud is now over a decade old. It’s established. The companies it raised to glory, like Salesforce, are now institutions.
This means speculators looking for fat gains should be exiting. Investors looking for long-term profits should be entering.
If you buy Salesforce stock today on weakness, don’t look to take a quick profit and jump away as I did. Be prepared to hold it for years. CRM shares are down 22% from their peak last September, but they will return to their highs, given time.
At the time of publication, Dana Blankenhorn directly owned shares in NOW.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
