Salesforce CEO Marc Benioff wants to add $50 billion to the business in 15 years - here's why analysts think he has a shot at it
- Salesforce, a company known for making big promises, told analysts it expects to see $60 billion in annual revenue by 2034 - up from the $10.43 billion the company is expected to report for fiscal 2018.
- To get there, analysts told Business Insider that the company is going to have to expand its product offerings into new industries through development or acquisitions.
- But none of the analysts seemed to think that this revenue target is unreachable.
Salesforce is one of the hottest companies in enterprise software, and CEO Marc Benioff plans to keep it that way.
While it took Salesforce a decade to reach its first billion dollars of revenue, the company expects to grow its revenue 600% - from $10 billion in fiscal 2018 to $60 billion - in the next 15 years, according to a slide shown to analysts last month.
As the founder and face of Salesforce, Benioff is not known for being demure. He does, after all, own the naming rights to the tallest building in San Francisco - not to mention the public transportation center and park that sit behind it. He regularly rents out AT&T park in San Francisco to host concerts with his self-proclaimed friends in hyper-famous rock bands like Metallica. And just this Thursday, he hosted Canadian Prime Minister Justin Trudeau in San Francisco for a meeting to discuss diversity (and a $2 billion investment in Canada).
This is all to say that Benioff goes big, and $60 billion in revenue is a pretty big deal. Only 139 of the global Fortune 500 generate that much revenue on an annual basis, and Salesforce rival Microsoft is one of the few software companies on the list to do it.
But analysts, in conversation with Business Insider, said that Salesforce's new revenue target is more than just another boast from the company's jubilant leader.
"Like lots of things that Marc does, he forward sells a vision," said Ray Wang, principal analyst and founder at Constellation Research. "I think that they're going to get there. We're gonna see that the combo of M&A and internal growth are going to happen to get to that number."
Salesforce's brand and community are its greatest asset
Whether Salesforce grows through acquisitions or product development, much of its success will come from customer brand loyalty, said Wang. People like the Salesforce universe and would prefer to use its tools than look to outside software.
"We're seeing a lot of expansion of existing Salesforce accounts into other areas," Wang said. "They're really trying to build people who are advocates for Salesforce inside organizations, and people that have the training skills."
This is key because it means that large enterprises may be less likely to use a Salesforce competitor or small startup in the space, even if the product offering is better.
"I have never seen anything like this in the history of enterprise software where people are just super excited to get badges and are competing for badges with the experts in different areas," Wang said about Salesforce's Trailhead training community. "Let's say Salesforce can activate those customers like that so that inside their own organizations they can adopt salesforce faster and quicker."
"It would be unlike any other enterprise software company in terms of getting adoption," Wang continued. "The last time we saw anything like that was in the 90's when everyone wanted to be an SAP certified consultant or SAP certified individual. And that's what's really interesting about what they've done."
There is potential in industries like government and healthcare
While Salesforce made a name for itself selling the Sales Cloud, its customer relationship management software for sales people, the company also sells subscriptions to software with specific tools for industries like finance and marketing.
Analysts see new industry-specific verticals as being a huge area of growth for the company - particularly in under addressed markets like healthcare and the public sector.
Salesforce actually launched its Government Cloud in 2014, and its Health Cloud in 2016, however both industries remain a very small part of Salesforce's overall revenue compared to its sales products.
Joel Fishbein, an analyst with BTIG, said he believes Salesforce has single-digit market share when it comes to the federal government, mostly because government agencies have been slow to adopt new technologies.
Currently, Salesforce counts the US Army, Air Force, the Department of Veteran Affairs and The Department of Homeland Security as customers.
"As the federal government undergoes this digital transformation story, Salesforce is in a very enviable position," Fishbein said.
Salesforce also has a growing foot print in healthcare, where it works with hospitals and insurance companies including Mount Sinai and Anthem.
Keith Block, Salesforce's Chief operations officer, said that the Health Cloud, along with the Financial Services Cloud, are the fastest growing products at the company. And the global healthcare CRM market is huge, and could grow to a $17.8 billion market by 2025, according to Grand View Research.
Growing its products offerings may also mean going deeper into its existing verticals by adding new capabilities. While Salesforce has always enabled its customers to manage customer relationships, there is opportunity to move into more actionable arenas such as billing and payments, analysts said.
"CRM doesn't really matter unless you have commerce or clicks. So to be able to carry all the way down into advertising and commerce, I think that's the big growth area for them," said Wang. "I think there are other areas at the edges, looking at the future of work and helping people be more productive."
Salesforce may also buy its way into new markets, as it did with AI
Salesforce has made 55 acquisitions since 2007, and almost a quarter of those were made in 2016, when the company spent almost $5 billion buying startups.
Many of the 2016 acquisitions were in the artificial intelligence sector, which the company used to launch its predictive analytics tool, Einstein.
There are also numerous startups in the Salesforce ecosystem which integrate with the platform in order to get users through the next step of the sales or marketing process. Acquiring some of these startups would make it easy for Salesforce to expand without developing competing products.
Exactly which direction the company will go in next, however, isn't totally clear. Penny Gillespie, a vice president of research at Gartner, believes Salesforce's acquisition strategy will depend on what the company defines as part of its territory. And that territory could be massive.
While Salesforce is by any means a CRM company, Gartner breaks down CRM into 190 different categories in order to analyze market saturation and trends.
For Gillespie, this means that Salesforce may have competition in areas that it hadn't previously looked at expanding into. And it may expand into an area of CRM that is hasn't yet considered to be relevant to its core business.
"Depending on the continuing evolution of the definition of CRM, Salesforce may have to expand in other areas outside of its traditional CRM strategy which would most likely be via acquisition," she told Business Insider.
Either way, Salesforce is still seeing double-digit revenue growth
If Salesforce can maintain its current growth rate it will be right on track to hit the first phase of its ambitious sales target.
The company has grown its revenue by about 25% year-over-year for the past two fiscal years (growth was as high as 37% in 2012). Even if Salesforce's growth slows further, the company could easily meet the first target - $20 billion in revenue by 2022 - by maintaining 20% annual revenue growth throughout the next four years.
Fishbein's firm estimates that Salesforce currently has a roughly 30% share of the CRM market, and that only 28% of Salesforce's revenues today are international - a figure he estimates could grow to 40%.
"They're easily on the trajectory," Fishbein said about the $20 billion revenue figure. "We think they can probably exceed that."
In the short term, it seems likely that Salesforce is on track to report 24% growth for fiscal 2018, which ended on January 31. The company reported $8.4 billion in revenue for fiscal 2017, and Salesforce told investors it expects between $10.43 billion and $10.44 billion in annual revenue when it reports for fiscal 2018 on February 28.