Salesforce.com, Inc. (NYSE:CRM) built a strong reputation by providing a high-end customer relationship management (CRM) solution to help businesses effectively manage workflows. The lane it created helped it grow to over a $210 billion market cap and become a market leader before finally gaining the attention of tech giant Microsoft Corporation (NASDAQ:MSFT).
The Seattle giant’s CRM and ERP applications built into Microsoft Dynamics 365 are aimed squarely at dethroning Salesforce, and this $1.5 trillion company has a long track history of dominating its competition.
What does this mean for investors when the choice is Salesforce vs Microsoft stock?
Both companies experienced historically high market caps in the aftermath of the coronavirus. Widespread stay-at-home orders forced everything from family gatherings to major events virtual.
Businesses responded by quickly deploying tools to enable virtual work and school from home, making each company’s CRM solutions necessary to cover new omnichannel workflows.
The big question is how Salesforce can defend itself from the advances of its larger, more established rival.
Will SAP Results Rock Salesforce Stock?
Salesforce had been trading at the high end of its trading range within a few quarters following the global pandemic market crash. However, SAP’s October earnings report made investors more bearish on the enterprise software sector.
Its next-gen collaboration and productivity tools are helping companies automate their workflows, which is driving the bearish attitude towards the company as an investment.
It’s a foundational part of the digital transformation, but it’s drawing the attention of bigger players, like Microsoft (MSFT), Oracle (ORCL), and Adobe (ADBE).
It’s not just relying on its own merits – Salesforce is active in mergers and acquisitions, including its June 2019 purchase of Tableau Software for $15.7 billion.
The company raised some eyebrows by selling its stake in Zoom (ZM) at the height of its popularity in July, which it then invested in the turbulent Snowflake IPO (SNOW). It needs these investments to keep it competitive with data analytics tools that increase the power of its existing CRM platform.
These insights are at the core of what will keep it competitive with bigger tech giants. But it will not be easy – it’s facing off against a behemoth with a history of snuffing out smaller competitors.
Microsoft Is Growing Almost Everywhere
Microsoft is one of the biggest companies in the world, with exposure in software, hardware, video game consoles, and OEM licensing of its Windows desktop OS.
While consumer profits are important, its enterprise contracts are what really made Microsoft a juggernaut.
Its fiscal year 2020 non-GAAP revenue was $125.843 billion, of which it earned $44.81 billion in profits, or $5.76 per share.
This represents a 21 percent year-over-year increase from 2019 and gave investors strong confidence in the stock heading into a holiday season that revolves around the release of Microsoft’s latest Xbox, along with rival Sony’s PlayStation 5.
The company increased revenue in nearly every area – Windows OEM, its commercial products, Xbox, and Surface.
Of course, its server products and cloud services market is the biggest growth sector, up 19 percent from the prior year, with Azure up 47 percent.
The push into Salesforce’s niche shows how the company is working to innovate at the technological foundation of enterprise. It’s a response to Google’s G Suite elbowing into its productivity revenues.
With stocks trading over $200 per share, CEO Satya Nadella’s “mobile first, cloud first” strategy is paying off, and its focus on AI is sure to keep it competitive moving forward.
Salesforce Stock In For A Bumpy Ride
Salesforce outperformed Cisco Systems (CSCO) in the aftermath of the coronavirus and holds a strong Buy consensus among analysts with a price target of $254.
These estimates mean the company is already near its ceiling and is likely to be unstable for the remainder of the year.
The biggest issue it faces is a potentially limited market, especially in 2021 as the economy contracts from the government stimulus assistance. As companies go out of business, it could affect bottom lines.
And as discussed, Salesforce faces stiff competition from tech giants like Microsoft and SAP.
Certainly, the Salesforce business model has proven successful as it grew to a respectable size, but that doesn’t guarantee it anything. The company will need to pull out all the stops to prove its AI-powered CRM and data analytics will help the bottom line for its clients.
Expect a rocky quarter that may even extend through the end of 2021. If you invest in Salesforce, you’ll be holding it for up to five years before seeing respectable returns.
Risks of Buying Microsoft
Microsoft isn’t just fighting Salesforce – it has rivals on all fronts, and the video game console wars will define its profitability for the fourth quarter of 2020.
If this launch doesn’t go well, it’ll lose valuable market share to rival Sony (SNE). And it’s still fighting to keep its Windows and Microsoft 365 market share against stiff competition from Apple (AAPL), Google (GOOG), and Amazon (AMZN) for its cloud-based services.
Cyclical PC sales will hamper the company’s growth potential, as it already owns a major share of its markets.
Of course, Google (GOOGL) is the one facing an antitrust suit that could help the company regain some of its former luster.
Microsoft Vs Salesforce Stock: The Bottom Line
Microsoft and Salesforce are competing head-to-head fore the crown of best CRM platform. Neither company is new, and they both have large enterprise contracts to leverage with its other products and services.
They both experienced growth as the coronavirus pandemic forced everyone to go virtual and support digital efforts. This led to both reaching all-time high market capitalizations.
Investing in either company is risky, as they’re facing a rough economy in 2021. However, the segment is going to remain necessary for years to come. While it’s bound to be slow, they’re both likely to maintain steady growth over the next ten years.
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