Evercore ISI Positive on salesforce.com (CRM): 'Price Hikes Could Provide A Potential Tailwind'

Evercore ISI analyst Kirk Materne reiterated an Outperform rating and $240.00 price target on salesforce.com (NYSE: CRM).

The analyst comments "Earlier today, Salesforce announced a 9% price increase across Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau. Importantly, this is the first price hike in 7 years, and in that time the company has invested +$20bn in R&D and delivered 22 new software releases + thousands of new features – including the recently announced AI Cloud and ‘GPT’ capabilities across its clouds. Specifically, the price increases are as follows: 1) Professional Edition raised $5/seat/month to $80, 2) Enterprise Edition raised $15/seat/month to $165, and 3) Unlimited Edition raised $30/seat/month to $330. Shares are rallying on the news. Bottom line: While there will clearly be some complaints from customers about the price increase, after a 7 year hiatus, we believe that a 9% increase is pretty reasonable given that other SaaS companies have passed through annual increases in the 4-5% range. Clearly, for big customers and customers adding new modules, we expect the net impact will not be anywhere near 9%, but we expect these price actions could provide a bit of a tailwind for CRM into 2H FY24 and 1H FY25. That said, it is worth keeping in mind that most ELA’s are three years in length so the impact from these pricing actions will be spread out over time. However, with buy-side revenue growth expectations only around 10%, we believe that these price adjustments provide some cushion to out-year revenue estimates, especially if the macro stabilizes in CY24. While the core of the CRM bull case remains centered on the continued push higher in op. margins (and FCF/share growth), we believe this was a sensible approach to pricing, especially in front of a new set of AI-infused products that are scheduled for release later in CY23. We expect to hear more details as to the impact from these pricing adjustments on CRM’s FY2Q earnings call in late August and please see here for the takeaways from our recent visit with CRM’s CIO and head of US sales. "

For an analyst ratings summary and ratings history on salesforce.com click here. For more ratings news on salesforce.com click here.

Shares of salesforce.com closed at $212.81 yesterday.

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