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The Salesforce headquarters in San Francisco.
Stephen Lam/Getty Images
Salesforce.com
was a cloud software pioneer. Founded right in the middle of the internet bubble in 1999, the customer relationship management software company has been public for more than 16 years, longer than most other cloud companies have existed.
Cloud computing had a huge year in 2020, and the trend should continue in 2021, as businesses shift more of their computing resources out of proprietary data centers to public clouds operated by
Microsoft
(ticker:MSFT),
Alphabet
(GOOGL), and others.
Salesforce (CRM), alas, might not be the best way to play it.
Piper Sandler analyst Brent Bracelin on Monday cut his rating on Salesforce to Neutral from Overweight, while keeping his $242 price target.
His view is that this “hungry hippo” needs time to digest two of its largest acquisitions: the $15.7 billion deal for Tableau in 2019 and the pending $27.7 billion takeover of
Slack Technologies
(WORK). He notes that the amount of stock issued in the two deals combined increases the number of shares outstanding by 194 million—or about 24% of the total outstanding before the Tableau deal. He thinks that all the extra stock creates “a more challenging setup” for Salesforce in 2021.
“The prospects of yet another year with little to no margin improvement, further dilution, and increasing execution risk could cap upside similar to 2019, when Salesforce lagged the S&P 500 on M&A and margin fears,” he writes. “We are lowering our rating …with plans to revisit once management has a stronger appetite to balance growth ambitions while improving margins.”
Bracelin also raised his rating on planning software provider
Anaplan
(PLAN) to Overweight from Neutral, with a new price target of $87, up from $66.
“The global pandemic and remote work realities have exposed the limitations of aging back-office systems that directly interface with a variety of workflows across accounting, treasury, procurement, supply-chain, and planning,” he writes. “Considering the last major overhaul of back-office systems was 20+ years ago ahead of Y2K, this has been an overlooked and underfunded segment that is ripe for a modern makeover.”
Not least, Bracelin provided a list of his top five cloud software picks for 2021:
Twilio
(TWLO),
Workday (WDAY),
Veeva Systems
(VEEV),
HubSpot
(HUBS), and
Asana
(ASAN).
Here’s a brief rundown on his five favorites.
- Twilio “Twilio should be able to capitalize on the growing desire from companies of all sizes to engage with their customers via digital channels.” He says risk-reward looks favorable with the stock at 20 times enterprise value to estimated 2022 sales. Raises price target to $475, from $365.
- Workday He sees potential for a “performance reversal in 2021,” asserting that revenue growth could reaccelerate on easier comparisons and a mix shift to financial software. Price target remains $285.
- Veeva “Capitalizing on the shift to digital in the slow moving, heavily regulated life sciences industry …additional add-on products could help offset a longer-term headwind in ties to pharma sales head count attrition.” Price target to $340, from $310.
- HubSpot Should be an “outsize beneficiary” as small-and medium-size businesses further digitize their businesses. “HubSpot has a long runway to sustain high growth.” Price target raised to $488, from $435
- Asana He notes that Asana is a “new application software layer for coordinating digital work,” sitting on top of messaging, videoconferencing, email, and collaboration platforms. Price target remains $40.
On Monday, Salesforce shares were down 1.3%, to $219.23, while Anaplan was up $2.9%, to $73.51. Asana, HubSpot, and Twilio were all up about 1%, while Workday and Veeva were down fractionally.
Write to Eric J. Savitz at eric.savitz@barrons.com
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