In this piece, I evaluated Salesforce, Inc. (CRM) and Apple Inc. (AAPL) and listed various reasons why CRM is attracting more investor attention.
Cloud-based software company CRM operates customer relationship management software and applications. The company reported outstanding results for the fourth quarter and full fiscal year 2023. “For the full year we delivered $31.4 billion in revenue, up 18% year-over-year, or 22% in constant currency, one of the best performances of any enterprise software company our size,” said Marc Benioff, CRM’s Chairman, and CEO.
“We closed FY23 with operating cash flow reaching $7.1 billion, up 19% year-over-year, the highest cash flow in our company’s history, and one of the highest cash flows of any enterprise software company our size,” he added.
CRM’s relentless focus on execution and proactive management of the current macro environment enabled the company to close out a strong year and position it for continued solid growth in fiscal 2024. In January 2023, the company announced its plans to cut the workforce by 10% and close some offices as a part of a restructuring plan amid an economic slowdown.
CRM’s revenue is expected to be in the range of $8.16-$8.18 billion for the first quarter and $34.5-$34.7 billion for the fiscal year 2024. The company also expects non-GAAP earnings per share to be between $1.60 and $1.61 for the first quarter and $7.12 and $7.14 for the full year.
On the other hand, AAPL is one of the most dominant tech players involved in designing, manufacturing, and marketing smartphones, personal computers, tablets, and accessories worldwide. AAPL’s CEO Tim Cook said, “During the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”
However, AAPL reported total net sales of $117.15 billion, down 5.5% year-over-year in the first quarter of fiscal 2023. The decline in total net sales was due to weakness in foreign currencies relative to the U.S. dollar, which contributed to lower net sales of iPhone and Mac, partially offset by higher net sales of iPad. In addition, the iPhone manufacturer reported a net income of $30 billion, a decline of 13.4% year-over-year.
AAPL’s certain outsourcing partners, component suppliers, and logistical service providers have experienced disruptions related to the COVID-19 pandemic, resulting in supply shortages. During the first quarter of 2023, pandemic-related impacts temporarily affected the company’s primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China.
Furthermore, macroeconomic headwinds, including high inflation, rising interest rates, and currency fluctuations, have impacted and could materially affect AAPL’s financial results in the near future.
Recently, Lightshed Partners analysts cut their rating on the stock from Neutral to Sell with a price target of $120 per share, implying a 20% downside risk.
CRM is a clear winner in one-month price performance, with 20.2% returns compared to AAPL’s 9.1% gain. Over the past six months, CRM has gained 33.9% versus AAPL’s 12.8%.
Here are the reasons why we think CRM could perform better in the near term:
Latest Developments
On March 7, 2023, CRM launched Einstein GPT, the world’s first generative AI CRM technology, which delivers AI-created content at a hyper-scale level across every sale, service, marketing, commerce, and IT interaction. Einstein GPT will infuse CRM’s proprietary AI models with generative AI technology from an ecosystem of partners and real-time data from the Salesforce Data Cloud.
The new launch would benefit the company significantly amid the burgeoning AI craze.
On January 18, 2023, AAPL introduced HomePod® (2nd generation), a powerful smart speaker that delivers next-level acoustics. Packed with Apple innovations and Siri® intelligence, HomePod offers advanced computational audio for an incredible listening experience, including support for immersive Spatial Audio tracks. This is expected to boost the company’s revenue streams.
Recent Financial Results
CRM’s total revenues increased 14.4% year-over-year to $8.38 billion in the fourth quarter that ended January 31, 2023. Its gross profit grew 18.3% from the year-ago value to $6.28 billion. Also, the company’s non-GAAP income from operations rose 123.3% from the prior year’s period to $2.45 billion.
Furthermore, CRM’s non-GAAP net income increased 96.4% year-over-year to $1.66 billion, while non-GAAP EPS rose 100% from the previous year’s quarter to $1.68.
AAPL’s total net sales for the fourth quarter that ended December 31, 2022, decreased 5.5% year-over-year to $117.15 billion, while its gross profit declined 7.2% from the year-ago value to $50.33 billion. The company’s operating income was $36.02 billion, down 13.2% year-over-year to $36.02 billion. Also, its net income and EPS rose 13.4% and 10.5% year-over-year to $30 billion and $1.88, respectively.
Past and Expected Financial Performance
Over the past three years, CRM’s revenue and EBITDA have grown at CAGRs of 22.4% and 27.9%, respectively. The company’s net income and EPS have increased at 18.2% and 11.8% CAGRs, respectively. Also, its levered free cash flow has grown at a 21% CAGR over the same time frame.
Analysts expect CRM’s revenue to increase by 10.5% in fiscal 2024 (ending January 2024) and 11.3% in fiscal 2025. The company’s EPS is expected to increase by 36.1% in the current year and 24.5% during the following year. Moreover, CRM’s EPS is expected to grow at a rate of 18% per annum over the next five years.
AAPL’s revenue has grown at a 13.1% CAGR over the past three years. Over the same time period, its EBITDA and net income have increased at CAGRs of 17.1% and 18.3%, respectively, while its EPS has grown at a 23.1% CAGR. In addition, the company’s levered free cash flow has increased at a 22.9% CAGR.
Analysts expect AAPL’s revenue to decrease by 1.4% for the fiscal year 2023 (ending December 2023) and increase by 6.9% in fiscal 2024. The company’s EPS is expected to decline by 2.3% in fiscal 2023 and increase by 10.4% in fiscal 2024. In addition, AAPL’s EPS is expected to grow at a rate of 8.1% per annum over the next five years.
Profitability
AAPL’s trailing-12-month revenue is 12.36 times what CRM generates. CRM is less profitable, with EBITDA margin and net income margin of 17.34% and 0.66% compared to AAPL’s 32.33% and 24.56%, respectively.
In addition, CRM’s ROE and ROTC of 0.36% and 1.59%, compared with AAPL’s 147.94% and 39.29%, respectively.
Valuation
In terms of forward non-GAAP PEG, CRM is currently trading at 1.07x, 59% lower than AAPL, which is trading at 2.61x. CRM’s forward EV/EBITDA ratio of 19.22 is lower than AAPL’s 19.89. Likewise, CRM’s forward EV/Sales of 5.75x compared to AAPL’s 6.40x.
POWR Ratings
CRM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, AAPL has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a grade of A for Growth and Sentiment, in sync with its robust financials and favorable analyst estimates. AAPL, on the other hand, has a B grade for Growth and C for Sentiment, consistent with its weaker financials and mixed analyst expectations.
Of the 136 stocks in the Software-Application industry, CRM is ranked #22, while AAPL is ranked #20 of 41 stocks in the Technology-Hardware industry.
Beyond what we’ve stated above, we have also rated both stocks for Quality, Stability, Momentum, and Value. Click here to view CRM Ratings. Get all AAPL ratings here.
The Winner
Over the years, software giant CRM has expanded from its roots in customer relationship management software into marketing, e-commerce, analytics, and other markets through strategic partnerships and collaborations. Moreover, increasing corporate spending on digital transformation projects remains a plus for the stock.
Hence, CRM is well-positioned for better returns than AAPL, which delivered a disappointing financial performance in its last reported quarter and might continue to struggle with weakening demand and supply chain disruptions.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software-Application industry here. Also, click here to check out the top-rated stocks in the Technology-Hardware industry.
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AAPL shares were trading at $161.78 per share on Thursday morning, up $1.01 (+0.63%). Year-to-date, AAPL has gained 24.70%, versus a 6.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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