Wednesday, December 2, 2020

When you think of Salesforce, you probably think of customer relationship management (CRM) software. That’s how most people use Salesforce. It’s the dominant player in that niche. Heck, the company’s ticker symbol is even $CRM.

Well, think again. Salesforce is more like a venture fund.

Salesforce has funded more than 400 entrepreneurs since 2009. It holds a stake in numerous businesses, and lists those investments on a portfolio page on the company website. Many of those investments have been handsomely profitable: Dropbox, Zoom, CloudLock, Box, just to name a few.

As a result, an increasing portion of Salesforce’s income actually comes from these investments. Figure 1, below, shows that a majority of the company’s pre-tax income stems from gains on those strategic investments (the orange line, which started exceeding operations income at the start of 2020 and then soaring in the last two quarters).

These investments also deliver a significant boost to Salesforce’s balance sheet. Figure 2, below, shows that strategic investments (the orange line) now account for almost 10 percent of total assets; marketable securities are another 10 percent. Add in goodwill, and you’re above 50 percent of total assets from those three line items alone.

One interesting detail: in its footnote disclosures, Salesforce assumes no change in the value of its strategic investments. Look at this excerpt from a Salesforce earning announcement filed on Dec. 1, 2020 (see it in its entirety on Calcbench):

“Gains on Strategic Investments, net: Upon the adoption of Accounting Standards Update 2016-01 on February 1, 2018, the company is required to record all fair value adjustments to its equity securities held within the strategic investment portfolio through the statement of operations. As it is not possible to forecast future gains and losses, the company assumes no change to the value of its strategic investment portfolio in its GAAP and non-GAAP estimates for future periods.”

So there you have it. Despite the CRM ticker, Salesforce is a lot more than CRM.


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