TBP Spotlight – Salesforce.com (SFDC) Q4 FY19 Earnings Call: Key Takeaways

 

Salesforce.com (SFDC) Q4 FY19 Earnings Call: Key Takeaways

Financials

Enterprise Value: $120 billion Annualized Recurring Revenue (ARR): $13.5 billion
Enterprise Value / LTM Revenue: 9.4x YoY Growth Rate: 26%
Enterprise Value / ARR: 8.9x Gross Margin: 74%

Following are the key takeaways for ISVs and System Integrators/Consulting Partners active in the SFDC ecosystem.

Salesforce is leading the conversation around Digital Transformation at large enterprises

  • After becoming the first cloud software company to reach $10 billion ARR, Salesforce is now on track to hit $26+ billion ARR by 2023. It saw 48% YoY growth in its $20+ million accounts, which includes at least two $100M+ accounts. Just think about it: $100M ARR is often a target for a SaaS company to go IPO!
  • The earnings call had favorable commentary on the Mulesoft acquisition, which has strengthened Salesforce’s ability to drive digital transformation in verticals like Financial Services and Healthcare. In Q4 FY19 Mulesoft contributed $181 million in revenues, although that might not be an accurate measure of its contribution. TBP’s Spotlight on the Mulesoft transaction had articulated the strategic rationale for the transaction that seems to be working out.

Clear articulation of the B2B2C model on the cloud

  • SFDC is leading digital transformation by enabling large enterprises to better connect with their customers, and even by helping them redefine their business models.
  • In the call, there was clear articulation of SFDC’s B2B2C vision where B2B sales processes, an area of historic strength for SFDC, can be extended to include the brand’s reach to the consumer using Commerce and Marketing Clouds.
  • Deeper integration with Google Analytics and Marketing Cloud flattens the barriers between the consumer and the company through simple clicks, , & .

Keith Block brings a renewed focus on Vertical Solutions

  • Industries like Healthcare/Pharmaceuticals, Financial Services, Government, and Manufacturing are very large markets that need vertical solutions on the cloud for their complex business processes.
  • There is a significant market opportunity to build industry vertical solutions on Force.com that will provide great ROI.

Global SIs are looking to double their SFDC practices with next 4 years

  • Salesforce’s FY23 revenue target represents a 20% CAGR. This could mean that consulting partners growing their SFDC practices at rates lower than 20% may be losing market share and therefore destroying value they have created.
  • Some of the largest SIs have over or nearly billion-dollar SFDC practices. To keep pace, they will look to add another billion in the next 4 years. Some of this will come through acquisitions.

Salesforce Einstein AI

  • Einstein AI is an important element of Salesforce’s digital transformation strategy, delivering more than 44 million reports and dashboards per day, and ramping up from 300 million predictions per day in 2017 to over 6 billion predictions per day today.
  • The continuum of integrating Einstein in all Salesforce platforms is demonstrated from its $2 billion+ spending on AI acquisitions in the last 5 years, and major investments in AI voice technologies such as Voicera and TalkIQ, Inc. to bolster Einstein Voice.
About True Blue Partners, LLC
True Blue Partners is a boutique M&A advisory firm that serves lower mid-market enterprise software, service and solutions companies. It brings the rigorous strategic and financial perspective of bulge bracket firms with a company building approach and a steadfast partnership that only an independent boutique firm can deliver. For more information please visit www.truebluepartners.com or email us at info@truebluepartners.com.

TBP was NOT an advisor to this transaction.