The cloud has plenty of room for growth.
Since going public in June 2004, Salesforce.com (ticker: CRM) has boasted enormous growth fueled by its early mover position in a strange new technology then known only as “the cloud.” Salesforce is now, in its own words, the “global leader in customer relationship management (CRM),” and the company’s ability to connect its users with their customers has allowed Salesforce to leverage its position at the top of the cloud market for impressive gains. Shares are up by more than 40% year to date. 2020 in particular has been a boon for companies like Salesforce that allow businesses to remain connected with customers even as employees work from home amid the pandemic. The problem is that Salesforce is no longer the only company in its growing market — which means that there are alternatives for investors looking to profit from cloud-based customer solutions. Here are six Salesforce competitors that investors should keep an eye on.
Microsoft Corp. (MSFT)
Microsoft’s CRM product is called Dynamics 365, which is part of the company’s broader Dynamics suite of products. The Dynamics 365 division represents a fraction of Microsoft’s sales, a business with a roughly $1.5 trillion market cap. Yet in first-quarter earnings for fiscal 2021, Microsoft announced that revenue from Dynamics products and cloud services soared 19% year over year — with Dynamics 365, which posted a 38% jump in revenue, driving much of the growth. A key advantage Microsoft has is its ability to integrate Dynamics with the wider suite of Microsoft products, making Dynamics an easy sell for businesses that already use Microsoft Office, Teams or LinkedIn. Combined with the impressive growth of its Azure cloud service, Microsoft could become a force to reckon with in the CRM market sooner than investors may think.
SAP SE (SAP)
With control of roughly 18% of the CRM market, Salesforce is miles ahead of its nearest competitor: SAP. As of mid-2020, the German company controlled 5.3% of the CRM market, yet SAP has struggled to take advantage of its position. In its third-quarter earnings report, SAP announced a 4% year-over-year decline in revenue, a 2% decline in cloud and software revenue, and perhaps worst of all, a large-scale downward revision of expectations for the remainder of 2020. Recent lockdowns in Europe to slow the spread of the virus have exacerbated fears that an economic recovery on the continent remains a long way off, and SAP’s customers seem to be putting off signing any large-scale contracts with the cloud company. But as more companies move operations to the cloud in the years to come, SAP could see potential long-term gains that investors shouldn’t ignore.
Oracle Corp. (ORCL)
Oracle sits just behind SAP in market share, and a strong 2020 may boost Oracle into the No. 2 spot. The company struggled to find its footing earlier this year, with revenue dropping 6% year over year during the fourth quarter due to a decline in new deals as businesses were adversely affected by the pandemic. But Oracle bounced back in its fiscal 2021 first quarter, posting a 2% increase in revenue fueled by “rapid revenue growth” in the cloud applications business. Cloud services and license support, which accounted for 74% of Oracle’s revenue last quarter, enjoyed a 2% bump in sales as companies resumed business and continued to utilize Oracle services. If Oracle maintains its momentum and continues to profit from companies coming back online, shareholders will profit as well.
Adobe is far from the biggest name in CRM, but it’s the premier online content creation company on the market. And Adobe has slowly but steadily been encroaching on Salesforce’s turf by enhancing its cloud-based services — a strategy that has allowed Adobe to profit from sudden pandemic-induced shifts that many businesses are being forced to undergo. The result was the best third quarter in Adobe’s history, as revenue rose 14% year over year, while earnings per share on a generally accepted accounting principles (GAAP) basis jumped 22% thanks to strong growth in the digital media business — which includes the Creative Cloud and Document Cloud segments. Adobe’s focus on the cloud, combined with its strong market position, has made it a top contender in the CRM market. Investors would be well-advised to watch a company that continues to gain market share.
HubSpot, with 86,000 customers to Salesforce’s 150,000-plus, may seem small, but it’s growing fast. More than a third of those HubSpot customers, for example, signed up with the company in just the last year. HubSpot has the sort of earnings report you’d expect from a company growing this quickly: a 25% increase in revenue during the second quarter, but a 69% increase in net losses year over year. The losses were partly driven by HubSpot’s move to attract new users by slashing the price of its Starter Growth Suite to $50 per month. The approach appears to have worked, as it yielded a 400% increase in new customers last quarter. If the company can keep these new users after the pandemic passes, it will be in an excellent position to profit.
Zendesk has had an excellent 2020, with revenue rising 24% year over year in the third quarter, bringing Zendesk closer to $1 billion in annual sales for the first time in its history. Perhaps more importantly, Zendesk’s churn rate began to improve this quarter after a choppy second quarter, meaning Zendesk’s customers are sticking with the company despite the unforeseeable nature of the pandemic. Another important metric recovered this quarter is remaining performance obligations, or RPO. This future revenue under contract increased 43% year over year, with both short- and long-term RPO improving nicely — a strong indication that Zendesk will continue to reap the rewards from a market that needs exactly what it’s selling.
Six Salesforce competitors to watch:
— Microsoft Corp. (MSFT)
— SAP SE (SAP)
— Oracle Corp. (ORCL)
— Adobe (ADBE)
— HubSpot (HUBS)
— Zendesk (ZEN)
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6 Salesforce Competitors Every Investor Should Watch originally appeared on usnews.com