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In this article, they will take a look into Salesforce Inc's (NYSE:CRM) DCF analysis, a reliable and data-driven approach to estimating its intrinsic value. Instead of using future free cash flow as in the traditional DCF model, the GuruFocus DCF calculator uses EPS without NRI as the default for the DCF model based on research that shows that historically stock prices have been more correlated with earnings than free cash flow.

As of 2024-01-02, Salesforce Inc's intrinsic value as calculated by the Discounted Earnings model is $73.44. It's currently trading at a price of $263.14. Therefore, the margin of safety based on the DCF model is -258.31%. The company is significantly overvalued.

The model

The GuruFocus DCF calculator follows a two-stage model by default. This model consists of the Growth Stage and the Terminal Stage. In the growth stage, the company is experiencing faster growth, while in the terminal stage, a lower growth rate is applied because sustained rapid growth is not sustainable in the long run. Salesforce Inc's intrinsic value estimated by Discounted Earnings model are arrived at by following assumptions and steps.

Assumptions

Calculation

Discounted Free Cash Flow Model

GuruFocus also provides the calculation using the traditional approach of free cash flow. Using trailing twelve month(ttm) Free Cash Flow per Share as a parameter, the DCF intrinsic value based on free cash flow is $307.55. This valuation indicates that the Salesforce Inc is modestly undervalued, accompanied by a margin of safety of 14.44%. You can always switch to using Free Cash Flow per Share to calculate the real DCF model on their DCF calculator page.

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The Bottom Line

Please note that while the DCF model is a robust valuation methodology, it relies on various assumptions and projections that may affect the accuracy of the final intrinsic value calculation. Here are some considerations when employing the DCF model:

• Future Earnings Potential: The DCF model evaluates a company based on its potential future earnings.

• Embracing Growth: Growth plays a pivotal role. All else being equal, a company with rapid growth will have a higher value.

• Predictability: The model assumes that a company will grow at the same rate as its past 10-year performance, making it a better fit for companies with consistent performance. For companies with unpredictable performance, such as cyclical companies, the DCF model may be less accurate and a larger margin of safety should be emphasized.

• Discount Rate: Selecting an appropriate discount rate is paramount. Using your anticipated return on investment is a sensible choice for the discount rate.

Navigating with GuruFocus:

Using the GuruFocus All-in-One Screener, you can easily screen for stocks that are currently trading below their intrinsic value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based). To identify undervalued predictable companies, focus on those with a high Predictability Rank that are trading at a discount to their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based).

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that their analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

This article first appeared on GuruFocus.

This year did not start off great for Salesforce, with an unusual level of turbulence and uncertainty surrounding the company. But as the year comes to a close, Salesforce finds itself in surprisingly good shape financially: Its stock is up over 96% year-to-date. Earlier this year, such an outcome would have seemed impossible to imagine.

The bad news started rolling in even before the new year began, when co-CEO Bret Taylor, who many speculated was being groomed to be heir apparent to Marc Benioff, quite suddenly announced he was leaving the company at the end of November. A week later, Slack CEO and co-founder Stewart Butterfield announced he, too, was stepping down. Losing two key executives in less than a week would be a huge hit to any company, but it would be just the start of an onslaught of bad news for the CRM giant.

As the year began, they learned that activist investors were, well, quite active inside the company. This included Elliott Management, Starboard Value, ValueAct Capital, Inclusive Capital and Third Point. When activists show up, they usually have a strong opinion on how to “fix” a company, and this would be no different.

First, they learned that Salesforce was bringing in three new board members, which felt like a way to appease the activists — especially because one of them was Mason Morfit, CEO and chief investment officer of ValueAct, one of those very same activists.

Activists typically pressure the company to cut costs, and in corporate terms, that usually means cutting staff. Sure enough, Salesforce soon announced that it was cutting 10% of its workforce, or 7,000 people, on January 4, 2023. The excuse was that it had overhired during the pandemic and this was a correction, but it could also have been throwing the activists a cost-cutting bone.

Either way, reports suggested the company didn’t handle the layoffs well, engineers were being pressured, and Benioff began preaching about going back to the office after embracing work from home, and what Salesforce called the “Digital HQ,” during the pandemic. The company’s reputation as a progressive, employee-friendly organization took a big hit.

collaboration software software

Salesforce CEO Marc Benioff, speaking on a conference call Thursday announcing the company's second-quarter financial results, said close to 20,000 businesses are using Chatter. "Customer response to Chatter has been nothing short of amazing," he said.

For its fiscal 2011 second quarter ended July 31 Salesforce reported sales of $394.4 million, up 25 percent from $316.1 million in the second quarter last year. Second-quarter earnings for the quarter were $14.7 million, down more than 30 percent from $21.2 million from one year earlier.

Salesforce is forecasting that sales will be in the range of $408 million to $410 million for the current third quarter, and in the range of $1.595 billion to $1.6 billion for all of fiscal 2011 that ends Jan. 31, 2011.

Customer adoption of Chatter is significant because it's Salesforce's first application designed for organization-wide use, unlike the company's salesforce and customer service management applications and Force.com development platform, which are used by specific departments or groups of employees.

"Chatter has the potential to take us enterprise-wide," Benioff said on the call. "This significantly increases their addressable market in cloud computing, one of the fastest growing segments in technology today." He also said adoption of Chatter increases Salesforce's customer retention rate.

Chatter works like consumer social collaboration sites such as Twitter and Facebook, but was designed for employee use within a business or organization. Salesforce unveiled Chatter at its Dreamforce customer conference in November and went live with the on-demand application on June 22.

Companies can turn on the Chatter service for free for employees and managers who are licensed to use Salesforce's CRM and Force.com services. Businesses can purchase additional Chatter-only licenses, for $15 per user, per month, for employees who aren't licensed to use other Salesforce products.

Benioff said about 10,000 Salesforce customers turned Chatter on in the first week of its availability. That eventually grew to about 20,000 customers, close to one-quarter of Salesforce's 82,400 customer base. The CEO said adopting companies included Sprint, Tyco, Avis, Budget, Dell and Perkin-Elmer.

Benioff said some companies purchased licenses to expand Chatter to departments that don't use the CRM or Force.com applications, including Nokia, Mitsubishi and Reed Exhibitions. But he didn't disclose how much revenue those subscriptions generated.

Salesforce said it increased its customer base by 5,100 in the second quarter, including 4,600 new customers it acquired "organically" and 500 that came with its $142-million acquisition of data services company Jigsaw. Benioff said its total customer base of 82,400 is up 19,000 from the second quarter last year.

• Several former Salesforce employees rejoined the company this year as "boomerangs."

• There were also high-profile departures of longtime executives.

• See below for Salesforce's leavers and joiners in 2023.

The end of 2022 was marked by a series of executive departures at Salesforce, including the exit of co-CEO Bret Taylor, who had been heir apparent to CEO Marc Benioff.

2023 was also a year of change, starting with a major restructuring that included laying off 10% of the company's workforce and ending with some old familiar faces in the C-suite.

In the wake of pressure to up profit and cut costs from a group of activist investors, including Elliott Management and Starboard Value, some longtime company veterans left, and former executives have returned to help. Benioff affectionately refers to those who have re-joined as "boomerangs," and he has called for more to come join them as Salesforce ramps up generative AI efforts.

Meanwhile, chief operating officer Brian Millham's influence at the company is on the rise. Some have speculated he could be first in line to succeed Benioff as CEO — if and when Benioff decides to step down.

Below is a list of the major Salesforce executive changes in 2023.

COO Brian Millham took on additional responsibilities. He now oversees about 70% of Salesforce's employees.

President and COO Brian Millham has been with Salesforce since 1999, but his influence at the company has ballooned in the last 18 months, which has caused some speculation that he could be first in line to succeed CEO Marc Benioff. In 2023, Millham's purview expanded to include marketing, employee success, and business technology, in addition to his other responsibilities — global sales, customer success, global alliances and channels, and professional services. Millham was promoted to COO, two years after a promotion to chief customer success officer and COO of global distribution.

Chief business officer Ebony Beckwith left Salesforce after 14 years.

By the time company veteran Ebony Beckwith left Salesforce in May, she held three different titles: chief business officer, chief of staff to Marc Benioff, and CEO of Salesforce Foundation. Neither Salesforce nor Beckwith gave a reason for her departure. Her LinkedIn profile has not been updated with a new job. Beckwith joined Salesforce in 2008 and began leading philanthropic efforts in 2014.

Former CMO Sarah Franklin is leaving the company at the end of the year to join Lattice as CEO.

After 15 years at Salesforce, Sarah Franklin has been named CEO of HR software startup Lattice, run by Jack Altman, brother of Sam Altman. She starts on January 2. In June, Franklin moved from her role as Salesforce's chief marketing officer to chair of the advisory board alongside Alex Dayon, who is retiring at the end of the year. Franklin was named president and CMO in 2021. She joined the company's marketing department in 2008.

Ariel Kelman returned to Salesforce as chief marketing officer.

Former Oracle CMO Ariel Kelman took the top marketing job at Salesforce in June. Kelman is one of Benioff's "boomerangs" — he first worked for Salesforce from 2005 to 2011, when he left to run worldwide marketing at Amazon Web Services. After eight years at AWS, Kelman spent a year and a half as CMO of Oracle. Kelman left Oracle in August of 2022 after the restructuring of the marketing organization he'd spent nearly two years building. At the time, sources told Business Insider that Kelman had clashed with Oracle CEO Safra Catz over the changes, which included mass layoffs.

Former Okta CMO Kendall Collins joined Salesforce as Marc Benioff's chief of staff.

Another of Benioff's "boomerangs," Collins joined Salesforce in April as chief business officer and chief of staff, roles previously held by Ebony Beckwith. Collins first worked for Salesforce from 2004 to 2016 after spending the first few years of his career at Oracle. Most recently, Collins was CMO of cloud software company Okta. He left that role in February of 2022, staying on as an advisor.

Former chief people officer Brent Hyder left Salesforce in August for VF Corp.

Hyder's relatively short — but busy — run at Salesforce ended in August when he left to join apparel group VF Corp. as chief people officer. In the four years he was at Salesforce, Hyder's human resources organization oversaw a pandemic-fueled hiring spree, followed by a major restructuring initiative that included laying off 10% of the company. In June, Insider reported that Hyder offended some employees with comments he made during a Pride Month event. Hyder joined Salesforce in 2019 from Gap Inc., where he had been chief people officer.

Miguel Milano joined Salesforce as chief revenue officer.

Milano joined Salesforce as president and CRO in August. Another "boomerang," Milano first worked at Salesforce from 2011 to 2020, eventually overseeing the international sales organizations for Europe and the Middle East, Latin and Central Americas, Africa, and Asia-Pacific regions. Milano left Salesforce in 2020 for the German data processing company Celonis, where he was CRO until his return to Salesforce. Former Salesforce CRO Gavin Patterson left the company in January.

Lidiane Jones is leaving Slack to take the top job at Bumble.

Jones, a Salesforce product executive who was named CEO of Slack in January, was recently appointed to succeed Whitney Wolfe Herd as CEO of Bumble Inc. Jones starts at Bumble in January. She joined Salesforce in 2019 from Sonos Inc. and quickly worked her way up from vice president of product for Commerce Cloud to overseeing the entire division. Denise Dresser, a Salesforce executive, will replace Jones as Slack CEO.

Advisory board chair Alex Dayon is retiring at the end of the year.

Dayon, a 15-year Salesforce veteran, is set to retire at the end of the year, Salesforce said in June. He is currently president and special advisor to the CEO, working remotely from Paris, according to his LinkedIn. He was previously president and chairman of the advisory board, reporting directly to Benioff, and before that, held chief strategy at product roles. Dayon joined Salesforce in 2008 and at one point, was gifted an electric BMW by Benioff.

A new chief legal officer joined. The chief trust officer left.

After 18 months as Salesforce's chief trust officer, Vikram Rao left the company in October to take the top cybersecurity role at Atlassian.

In June, Sabastian V. Niles joined Salesforce as president and chief legal officer. Niles, formerly a partner at Wachtell, Lipton, Rosen, & Katz, had been counseling Salesforce as it responded to a group of activist investors earlier in the year.

Read the original article on Business Insider