salesforce slides

Salesforce Valua-on Chris, Connor, Kate, Lauren, Sam, Walker

Salesforce.com, Inc. is undervalued by 14%. We value it at $61 per share

Increased demand for CRM

Outperforming industry compeGtors

European and Asian expansion

Base product offerings growing

Company Culture

Partnerships

Market leader in CRM and SaaS

Product and market expansion

Overall Brand Strength

1 Market Leader – Market Expansion – Brand Strength – Company ValuaGon


Salesforce provides leading CRM products

Salesforce operates within a large growing market

Cloud ($135B)

SaaS ($105B)

CRM ($17B)

Total Addressable Market


(Y14) Salesforce revenue: $4B

Increased demand for CRM services




Company Culture

Partnerships






0.0

0.5

1.0

1.5

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3.5

Salesforce SAP Oracle MicrosoY IBM

Billion

s ($)

CRM Market Share

Salesforce leads the global CRM market with 16.1% market share

6

16.1%

12.8%

10.2%

6.8%

3.9%

Market Leader – Market Expansion – Brand Strength – Company ValuaGon

Source: Mind Project: Cloud ApplicaGon Marketplace 2014 -‐2019

Salesforce’s products offer more funcGonality than those of its compeGtors

Real-‐Gme collaboraGon

✔ ✔ ✔ ✔

Any mobile device

✔ ✔

Open pla_orm ✔ Easy to

customize ✔ ✔ ✔

Outlook integraGon

✔ ✔ ✔ ✔ ✔


Source: SoYware Advice 2014

Live support ✔ ✔

Total CRM market revenue is expected to grow 53% by 2017

Source: Gartner, Forbes 2014

8 Company Overview – Market Leader – Market Expansion – Brand Strength – Company ValuaGon

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2010 2011 2012 2013 2014 2015 2016 2017

Billion

s ($)

Future CRM Revenue

Total SaaS industry revenue is expected to grow 83% by 2019



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2014 2015 2016 2017 2018 2019

Billion

s ($)

Future SaaS Revenue

Global cloud services are expected to grow 10% per year through 2019



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Billion

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Future Cloud Revenue

Growing demand for CRM services




Company Culture

Partnerships






Salesforce offers products that cater to any size business in any industry

Sales Cloud:

Sell Faster

AnalyGcs Cloud:

Interpret Data

Community Cloud: Connect Customers

MarkeGng Cloud:

Digital Ad Pla_orm

Service Cloud: Improve

Experience

SalesForce CRM

App Pla_orm: Build B-‐Apps

Cloud


Salesforce’s development of new products will contribute to its conGnued success and LT-‐growth

App Exchange Force.com

DescripGon

Market

Purpose

Product InformaGon

Business applicaGon marketplace

Open-‐source applicaGon builder for SalesForce

ApplicaGons PaaS

Enter business applicaGon market

Improve exisGng CRM product

Long Term Growth & Entrenchment

Wave

Cloud-‐based analyGcs product

Big Data

Expand into growing data

market

2014 2005


Investments in R&D fueling innovaGve product development will conGnue to increase


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Millions ($

)

Revenue Spent on R&D

Source: Marketline 2014

Salesforce is expanding infrastructure in Europe and Asia to meet growing global demand for CRM services

European Expansion Asian Expansion

UK data center 2014

German and France data centers 2015

French headquarters in 2015

Singapore data center in 2009

Japan data center 2011

Second Japan data center 2015

15 Market Leader – Market Expansion – Brand Strength – Company ValuaGon Source: Marketline Company Report

Salesforce will nearly double data center capacity next year

Market Leader – Market Expansion – Brand Strength – Company ValuaGon 16 Source: Marketline Company Report

Investments in Europe and Asia will increase Salesforce revenue by 9% CAGR over the next 6 years

During FY 2014, the company reported revenue growth of 41% in Europe

7 total current data centers:

4 US, 1 in Japan, 1 in Singapore

In FY 2016 adding data centers in UK, France, Germany, and Japan.


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1000

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Salesforce revenue growth in Europe and Asia-‐Pacific Europe

Japan

CAGR (Y10-‐Y20): 23% CAGR (Y14-‐20): 9.4%

Millions ($

)

Source: Trefis Salesforce Report





Company Culture

Partnerships






Salesforce’s brand is recognized for excellence across its operaGons


Salesforce has partnered with over 30 brands to cement its posiGon in the market

Entrench Improve Expand

Geographic Market

Industry & Market Segment

Products ExisGng products


Salesforce’s ability to akract and retain industry leading talent adds value to the firm

Career Growth Opportuni-es

Compe--ve Compensa-on

Desirable Company Values

Uncapped Commission Philanthropy

Stock-‐Based CompensaGon Product CEO

ConGnued EducaGon Work Environment

Internal Mobility

Career Coaching

Top-‐level talent acquisi-on and reten-on






Company Culture

Partnerships






Model assumpGons reflect the value drivers idenGfied in our strategic analysis

Market Leader – Market Expansion – Brand Strength – Company ValuaGon 23

Assump-on 2015-‐2018 2019-‐2021 2022-‐2024 Historical Average Terminal

Revenue 2.5%

SubscripGon & Support 35% 27% 19% 33.4%

Professional Services & Others 40% 29% 20% 27.0%

COGS % of total revenue 22% 22% 22% 21.4%

Sales, General & AdministraGve % of total revenue 56% 50% 44% 65.0%

Research and Development % of S&S revenue 12% 12% 12% 12.7%

DepreciaGon % of total cost 6% 6% 6% 6%

Capital Expenditures % of total revenue 6%* 6% 6% 9.4%

Change in NWC 5% 5% 5% 5%

*CAPEX rate in 2015 was modeled at 20% of total revenue to incorporate new data center construcGon (2011: 22%)

In millions of USD Historical Performance Projected Cash Flows 2010 2012 2014 2016 2018 2020 2022 2024

Total Revenue 1,306 2,267 4,071 7,453 13,650 22,065 33,404 47,362 COGS 258 489 968 1,640 3,003 4,854 7,348 10,420

% of revenue 20% 22% 24% 22% 22% 22% 22% 22% Gross Profit/(Loss) 1,048 1,778 3,103 5,814 10,647 17,210 26,055 36,942

Total SG&A 801 1,517 2,728 4,174 7,644 11,032 14,698 20,839 % of revenue 61% 67% 67% 56% 56% 50% 44% 44%

Research and Development 132 295 624 836 1,524 2,459 3,716 5,262 % of Subs. & Support revenue 10% 13% 15% 12% 12% 12% 12% 12%

AmorGzaGon -‐ -‐ 37 37 37 37 37 37 EBIT 115 (35) (286) 766 1,441 3,682 7,604 10,804

Net Income: EBIT x (1 – tax rate) 69 (12) (186) 536 1,009 2,578 5,323 7,563 Tax Rate 41% 65% 35% 30% 30% 30% 30% 30%

Add: DepreciaGon & AmorGzaGon 53 157 407 436 767 1,138 1,583 2,228 Less: Change in Working Capital 31 105 (1) 373 683 1,103 1,670 2,368 Less: Capital Expenditures 54 171 299 447 819 1,324 2,004 2,842 Free Cash Flow 37 (131) (114) 115 238 1,251 3,194 4,544 Terminal Value 74,411

Terminal Val. Growth Rate: 2.5%

WACC 8.8% Shares Outstanding (millions) 630 Enterprise Value 39,565 Add: Cash & Cash Equivalents 782 Less: Long-‐Term Debt 1,874 Price per Share $ 61

Equity Value 38,472 Revenue CAGR (2010-‐2014) 32.9% Revenue CAGR (2015-‐2024) 27%

We value Salesforce, Inc. (NYSE: CRM) at $61 per share


CRM’s potenGal returns are highly sensiGve to changes in baseline assumpGons

Pessimis-c Base Op-mis-c Revenue

SubscripGon & Support 32% -‐ 27% -‐ 15% 35% -‐ 27% -‐ 19% 36% -‐ 28% -‐ 20%

Professional Services & Others 31% -‐ 28% -‐ 15% 40% -‐ 29% -‐ 20% 41% -‐ 30% -‐ 21%

COGS (% of total revenue) 22.5% 22% 21.7%

SG&A (% of total revenue) 56.3% -‐ 50.4% -‐ 44.2% 56% -‐ 50% -‐ 44% 55.8% -‐ 49.6% -‐ 43.6%

Terminal Growth 2.5% 2.5% 2.5%

Share Price $47 $61 $68

PotenGal Return (14%) 14% 27%

Market Price $53.79

21 Market Leader – Market Expansion – Brand Strength – Company ValuaGon 25

PotenGal risks may alter Salesforce’s current valuaGon

21 Market Leader – Market Expansion – Brand Strength – Company ValuaGon 26

Compe--on from Legacy Vendors: CompeGtors have greater financial resources

Acquisi-on Integra-on Risk: PotenGal for operaGonal inefficiencies

Privacy Concerns: Security breach could decrease demand





Company Culture

Partnerships






Appendix

Table of Contents: •  (30) – CRM Market Share •  (31-‐33) – Market Revenue Growth •  (34) – Sources of Revenue •  (35) – CRM Market Growth Table •  (36) – Industry Assessment •  (37) – OperaGonal Status •  (38-‐41) – Salesforce SWOT •  (42-‐43) – Oracle Analysis •  (44-‐45) – MicrosoY Analysis •  (46) – IBM Analysis •  (47-‐48) – SAP Analysis

•  (49-‐53) – R&D Analysis (SF, SAP, Oracle, IBM, Percentages)

•  (54-‐65) – Products / Pricing •  (66) – Data Center Expansion •  (67) – Percent of revenue spent on

R&D ( •  (68-‐71) – Partnerships •  (72-‐79) -‐ History •  (80) – Historical RaGos for Model

AssumpGons

Appendix

CRM Market Share

CRM Market Share

Company Billions ($)

Salesforce 3.2903

SAP 2.6215

Oracle 2.0965

Microsoft 1.3924

IBM 0.7921

30 Appendix

SaaS Revenue ProjecGons

Saas Revenue

Year Billions ($)

2014 108

2015 115

2016 123

2017 136

2018 148

2019 160

31 Appendix

Cloud Revenue ProjecGons

Cloud Revenue

Year Billions ($)

2014 130

2015 145

2016 165

2017 180

2018 200

2019 225

32 Appendix

CRM is the largest global market within SaaS and is expected to grow to $35B in 2018

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