EM Portfolio: Stock Pitch – Salesforce (CRM)

HOSTS Alec Renehan & Bryce Leske|14 September, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

It’s time for another investment committee meeting for the Equity Mates Hypothetical Portfolio. As we continue this learning experience of building out a hypothetical portfolio, we hear Bryce’s first stock pitch.

Bryce has chosen one of the large software companies over in the States – Salesforce (CRM).

For more information on the Equity Mates Hypothetical Portfolio – head to our Portfolio webpage here.


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Bryce: [00:01:28] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing f

Bryce: [00:01:28] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:43][15.5]

Alec: [00:01:44] I'm very good, Bryce. I am so excited for this episode because after trying to avoid it for so long, we're finally going to hear your vaunted first pitch for our hypothetical portfolio. [00:01:57][13.7]

Bryce: [00:01:58] I don't know why you think I've been trying to avoid it. It's just the flow of the episodes haven't allowed it. And is that right? Yeah. [00:02:05][6.9]

Bryce: [00:02:06] I'm pleased to announce that I'm not going to be pitching a stock today. Hopefully you come with the content idea. Yeah. [00:02:13][7.2]

Alec: [00:02:13] You've got listeners suggestions that you want to pass off as your own. [00:02:16][2.9]

Bryce: [00:02:17] Not bad. Not bad. [00:02:19][2.0]

Bryce: [00:02:19] So, yes, Ren, we are going to be doing a satellite stock pitch for our hypothetical portfolio. Well, I am going to be doing a satellite stock pitch for our hypothetical portfolio [00:02:29][9.4]

Alec: [00:02:29] satellite stock pitch. Sounds like you're going to be pitching a satellite stock like a spy satellite space. [00:02:36][6.6]

Bryce: [00:02:36] No, it's [00:02:36][0.4]

Alec: [00:02:37] not your pitching. So it's going to be an Australian retail stock that is staying strong. Online sales growth, [00:02:43][6.6]

Bryce: [00:02:44] you know, hey, you've got my thesis worked out. [00:02:47][3.0]

Bryce: [00:02:48] I actually did think about doing some of those stocks, but I thought that's just really boring and straightforward. You know, [00:02:54][6.0]

Alec: [00:02:55] how like it's all about building a personal brand. Your personal brand is the retail whisperer. [00:02:59][4.3]

Bryce: [00:02:59] Yeah, but [00:03:00][0.3]

Bryce: [00:03:00] yeah. Well, look, maybe this is going to be different and I can move away from that brand, but we'll say, [00:03:05][4.9]

Bryce: [00:03:06] you know, all [00:03:06][0.5]

Alec: [00:03:07] of this this will be the first stock you pitch that just doesn't come [00:03:10][2.7]

Bryce: [00:03:10] off. True. Well, nice. [00:03:11][1.3]

Bryce: [00:03:11] So looking forward to pitching my stock before we do a bit of housekeeping if you are new to the show. Welcome to Equity Mates. Really happy to have you involved in the community and on the journey of investing. We have a 12 part series, standalone series called Get Started Investing feed, which has all the fundamentals that we believe will give you the confidence you need to get started in the market. So please go and listen to that. It is a separate podcast. Search the new podcast player now get started investing and recommend you go and listen to that and then come and join us on the show if you are right at the start of your investing journey. And also a big shout out to all of you out there who are sending in submissions for the hypothetical portfolio. We've had some awesome ones come in. One came in today that we're pretty excited to be looking at in further detail. [00:03:55][44.1]

Alec: [00:03:56] So we'll try and get them on the show so we won't talk about it here. But it was three paragraphs just submitted on our Contact US form on our website. And we both read it like this is great. Like it was a clear pitch, just some simple maths. Yeah, but it was compelling, very compelling. [00:04:12][16.6]

Bryce: [00:04:13] And that's what we're after. As we said, the thesis can be 50 words. It can be 5000 words like Ren likes to write [00:04:18][5.2]

Alec: [00:04:19] or the thesis could be a name like it could be [00:04:21][2.3]

Bryce: [00:04:21] whatever it could be, whatever you want, but keep them coming [00:04:23][2.2]

Bryce: [00:04:24] in. We do recognise them coming in. We just can't respond to all of them at once. But please, we do endeavour to do the best we can to reach out to you guys who are sending them in. And we're hopefully going to be involving more and more of you on the show as time goes on. So stay tuned for that. [00:04:38][14.8]

Alec: [00:04:39] So I think it's worth just clarifying or just resetting where we're at for people who've just picked up this conversation around the hypothetical portfolio, we started this hypothetical portfolio in twenty seventeen just to try and learn and we've revised it for the same reason. Nothing we pitch here. None of the stocks, none of the ETFs we talk about are buy or sell recommendations. This is literally just the most practical way we could try and apply what we've learnt and what we are continuing to learn on the podcast. So Bryce is stock pitch here is nothing more than him trying to apply what he's learnt over the last few years. Same with which [00:05:14][34.9]

Bryce: [00:05:14] might not be a lot, by the way. [00:05:15][0.8]

Alec: [00:05:16] Same with any guests that we get on the show or anything like that. This is all just about a collaborative learning experience. Some of those stocks are going to do really well, especially if they're Bryce as retail stocks. Some of these stocks are going to do terribly. But for us, we find that there's no better way to learn than to jump in the deep end and, you know, make that first trade and get actually started investing. That's why we called the spinoff podcast Get Started Investing feed. Um, and so, yeah, I think that's an important reminder. You can track the portfolio on our website, Equity Mates dot com slash portfolio. We've had a few technical issues. I think as we record the website, that page on the website is down, but it will be back up. Oh, but yeah, what we want to do is basically just take the community that we've got here and use this as a platform to share ideas and to introduce people to stocks. We want to get introduced to stocks what you haven't heard of and just keep learning and try and learn in a really practical way. So that all being said, I am very excited to get Bryce as first stock pitch of twenty twenty underway and Ren. [00:06:22][66.1]

Bryce: [00:06:23] I want to caveat it with you. [00:06:24][1.5]

Bryce: [00:06:26] These are officially the Equity Mates investing committee meetings, these pictures, as with all investing committee meetings, stock pictures don't necessarily always make it into the portfolio. [00:06:37][10.7]

Bryce: [00:06:37] OK, OK, so you do [00:06:39][1.7]

Bryce: [00:06:40] hold 50 percent voting rights at the moment. If you don't want this to go into the portfolio, that is fine. I won't take offence to. [00:06:46][6.2]

Alec: [00:06:46] It wasn't the rule. If we disagree, we would put it to the audience in the Equity Mates community. Yeah. [00:06:53][6.9]

Bryce: [00:06:53] So if we disagree, I have my theory about this stock and whether or not it should go in the portfolio right now. [00:06:59][5.3]

Bryce: [00:06:59] However, we can chat about that later. And I'd [00:07:01][1.9]

Bryce: [00:07:01] love to take [00:07:01][0.4]

Bryce: [00:07:02] this one to see how I. [00:07:04][2.2]

Alec: [00:07:04] Look, I'm not going to lie. It is very tempting to flat out refuse to add whatever you are about to pitch just so we can test out the poll in the face. [00:07:14][9.6]

Bryce: [00:07:14] But it's not a bad theory. We should give it a crack. Yeah. Let's say what you think of the pit. [00:07:18][3.7]

Alec: [00:07:18] I expect to be blown away by this pit you've been talking about all day. [00:07:21][2.8]

Bryce: [00:07:22] Oh, I've been cowering away in my room and trying to figure out this damn thesis template that you put together, which is way too confusing. I'm more of a gut feel investor. You're a numbers man. So so everything I [00:07:35][13.0]

Bryce: [00:07:35] say and do here is based on intuition and gut feeling. [00:07:38][3.2]

Alec: [00:07:39] Is that the biggest learning you've had for the last three years? [00:07:41][2.0]

Bryce: [00:07:41] Yes. Go with your gut. I got to know who you are [00:07:43][2.5]

Bryce: [00:07:44] as an investor. So Ren today I'm pitching an American company listed over obviously in the States. The company is Salesforce Stockticker CRM. [00:07:52][8.5]

Alec: [00:07:53] Yeah, I like the play that they've done with the Tik-tok CRM [00:07:56][2.6]

Bryce: [00:07:57] Customer Relationship Management. Uh, we'll get into that in a second. Current market cap of two hundred and twenty seven billion, so reasonably sized company revenue trailing 12 months is nineteen point three billion. It's got a revenue compound, average growth of twenty six percent. And we'll get into a few of the financials a little bit later on [00:08:19][21.4]

Alec: [00:08:19] just to explain that term compound annual growth rate is the average rate. It's grown per year. So over the past five years, it's grown its revenue on an average of twenty six percent a year. Yeah, that's strong. It's great. [00:08:31][12.0]

Bryce: [00:08:32] This is a cash machine. Takes my interest and that's my pitch. What do you think? So let's get a [00:08:38][6.3]

Bryce: [00:08:38] bit about the company. But first, I just want to share a bit of a story as to how Salesforce started. I like the company. They're quite an aggressive company in the space. [00:08:48][9.7]

Alec: [00:08:49] You are noted for your aggression. [00:08:50][1.5]

Bryce: [00:08:51] Yes, that is true. Thank you. [00:08:52][1.4]

Bryce: [00:08:52] I am. Have I? But yes, they're quite an [00:08:56][3.4]

Bryce: [00:08:56] aggressive company in in terms of their strategy, which I'll touch on in a little bit. But they're also a very innovative company, especially when it comes to their marketing side of things. So let me tell you a bit of a story. The CEO of a tiny Start-Up that no one had heard of paid actors. [00:09:10][14.7]

Bryce: [00:09:11] This is true and this is true. Why are you laughing? Just the way the story started. This is this is how I pitch. All right. I didn't write this story, [00:09:20][8.9]

Bryce: [00:09:20] by the way. This is true. This is a true story. I mean, it's a true story. The CEO of a tiny Start-Up that no one had heard of paid actors to carry anti software signs. They marched in front of a user conference for Siebel Systems, which sold customer relationship management software. Later that year, Benioff, the CEO, hosted a military themed party where guests threw pieces of software into trash bins. The stunts gained attention, but no one really believed that Benioff Start-Up Salesforce could take on giant software companies. Business Insider wrote an article on the protest and called Salesforce The Ant at the Picnic. The ant at the picnic has helped to create a two hundred and fifty billion dollar global market benefits company was built around one main idea that software should be delivered 24/7 to people over the cloud. Salesforce was the first. Salesforce was the first company to do this. In the late 90s, companies like Oracle and SAP were selling software to businesses that had to be installed and updated on premise. Now Oracle, SAP and the rest of the world are belatedly building cloud products, trying to catch on to the movement that Salesforce has started. So what an open on it is. [00:10:34][74.3]

Alec: [00:10:35] It is maybe for people who are unfamiliar with the distinction between like cloud based software as a service and traditional software, maybe. Can you just explain that distinction? [00:10:44][9.1]

Bryce: [00:10:45] We are about to have a guest on who will talk us through this cloud in more detail. So, again, I won't take away from you. [00:10:51][6.5]

Bryce: [00:10:52] I take away from them. [00:10:52][0.7]

Bryce: [00:10:53] But as as it says here, traditionally companies have had to install software, I guess, physically through their hardware systems on premise, through the their networks. Cloud really takes away all of that and allows you to access really any software through browsers wherever you are. That is in its most basic form. Yeah. So what is Salesforce? Will Salesforce provide cloud based CRM, which is customer relationship management? Take a step back. What is that? It is one of many different approaches that allow a company to. Manage and analyse its own interactions with their customers, using data analysis about customers history, really to improve the business relationships with customers, focussing on really retention and also ultimately driving sales growth. So this is where sales force really come in. They provide. Well, they started out providing a system that allows businesses to have customer relationship management in the cloud. So one important aspect of CRM approach is the systems of CRM compile data from a range of different communication channels, including, you know, telephone, email. And it's an all in one sort of system. And the good thing about Salesforce is that they are the number one provider of CRM in the space at the moment, dominating market share in terms of total revenue and customers at about 18 percent market share, their nearest competitors hold between sort of five to six percent. So they absolutely dominate in this area. Salesforce provide not only CRM, but they now have solutions, native solutions in marketing, e-commerce, as well as a service cloud for customer support. So they're really expanding their product suite so companies can come on and have a one stop solution that provides all the necessary sort of tools that they need in the cloud to manage their customer relationships. Any questions thus far? Ren. [00:12:49][115.9]

Alec: [00:12:49] No. I'll let you keep doing this spiel and then I'll jump into some questions. [00:12:53][3.6]

Bryce: [00:12:54] Awesome. So why do I like Salesforce? For me, the first thing is that it's an industry that is growing quite rapidly. It's the software as a service industry and cloud, I guess, computing and the cloud sort of infrastructure. You say Adewusi is absolutely growing and we're seeing more and more businesses and corporate spending coming in. And in terms of digital transformation, demand for next gen sort of collaboration has also been increased by Covid. And Salesforce is in a spot at the moment that allows them to really harness the growth that's coming through. And more and more companies are investing in business analytics and artificial intelligence tools that really help them understand who their customers are and drive customer acquisition, retention and sales. They're also an aggressive acquirer of other companies Ren. So in 2013 they acquired ExactTarget in 2016, Demandware in 2018, meals soft in 2019. Tablo. They do publicly state that it is part of their strategy to acquire these companies that play in spaces that they don't necessarily own, but they use to bring on and build their product portfolio so that I guess they can then go to their customers and their clients and offer them an all in one solution. This is driving a lot of their growth and it could be argued that, you know, what is their organic growth versus that growth coming from acquisition. But considering it's part of their strategy, it's something that I guess needs to be considered, but so far to date have been very successful in the acquisitions that they've made. And I think the biggest pace as well is that they allow a bit of an open source platform where you can really go on and manipulate the Salesforce platform so that it really works for your business. A lot of the products from their competitors are sort of out of the box solutions, whereas Salesforce really allow you to create products that work for your business. So big focus on international markets building an ecosystem bigger than their competitors. And interestingly, they've just been added to the Dow Jones Industrial Average replacing ExxonMobil in the 30 stock index. For me, it's a company that is just generating huge amounts of cash. They're free. Cash flow over the last ten years has been growing at 31 percent. So they're absolutely smashing out free cash flow. Revenue has been growing significantly. They just reported Q2 revenue of five billion profit on that, I think was just under two. So pretty significant margins. And yeah, I think it's just one of those companies that for me feels like it's in a space that's consistently growing and they're at the top of the market. So from a competitive advantage point of view, it's going to take a lot for competitors to match the product offering that they have. [00:15:48][173.9]

Alec: [00:15:48] It's an interesting company and it's a good pitch. [00:15:51][2.6]

Bryce: [00:15:52] You know my best part. [00:15:52][0.9]

Alec: [00:15:53] Well, you best so far, I'm sure. [00:15:55][1.8]

Bryce: [00:15:55] Sure. [00:15:55][0.0]

Alec: [00:15:56] So let's start with the industry as a whole. So you said it's the number one CRM customer relationship management platform by far. Yeah, by far. And it's got 18 percent market share. So it's the number one with less than a fifth of the market. So maybe can you expand on the competitive dynamics a little bit? [00:16:16][19.6]

Bryce: [00:16:16] Yeah. So from what I understand, so their biggest competitor is the likes of SAP, Oracle. Microsoft is really starting to play in this space A. OBE, and between them, they're reasonably close in terms of market share or with about sort of five or six percent from what I saw in the latest report. [00:16:33][17.5]

Alec: [00:16:34] So there must be an extremely long tail of providers. [00:16:37][3.3]

Bryce: [00:16:38] Yeah. So there is no doubt that there are more and more competitors, aggressive competitors coming into this space quickly. It's a growing industry. So you're just seeing more start-ups driven by this sort of technology, really focussing in on particular components of what Salesforce offer. The difference being that they may focus on just CRM, whereas Salesforce is now doubling down and really building out a full suite of products. [00:17:03][25.4]

Alec: [00:17:04] Yeah, so that was going to be my follow up question. It's like if there's such competition in the industry, I guess the broad question is what's their model? How are they defensible? How they better than the competition? And I guess the two sub questions in that one, how do they attract new market share and to how do they retain their existing customers [00:17:23][19.3]

Bryce: [00:17:24] so that fifty four thousand people working for them, they pour money into, I think, around 14 percent of rêve. They pour into research and development. They're obviously aggressive acquirers of other companies as well. But from what I understand internally, they have a pretty aggressive sales team themselves that have been voted. The world's best workplace number of years running now attracts talent. But yeah, I think they're moed. So I went on and actually looked at the number of customer reviews of Salesforce versus some of the competitors. [00:17:55][31.3]

Alec: [00:17:56] That's a good research to [00:17:58][1.6]

Bryce: [00:17:58] say what was going on. Why are people actually using Salesforce over a number of other applications? One reason is it's almost like an industry standard now. So if you have Salesforce, it's easy to get people to come and work for you in some respects because Salesforce is kind of everywhere at this stage, too. It's the only platform that has full stack. As I've said before, it has everything that you need to complete the full sort of circle from marketing through ecommerce, through. You can build your own apps in the platform. And I think the flexibility of the platform is sort of unrivalled compared to some of their competitors. I could be sort of speaking out of school because I haven't done as much research on the likes of what Microsoft is bringing to the table at the moment. But from what I understand, people who are using it, that's what they sort of say. What is more appealing than some of the competitors coming to the market at the moment. [00:18:51][53.7]

Alec: [00:18:52] So to add to that, I think a lot of these software as a service, businesses become quite embedded in an organisation and then the switching costs are quite high for an organisation. So if you're a company like Arnett's or someone who's trying to sell biscuits into retailers and stuff like that, if you're tracking your sales on Salesforce and you've got, you know, all your customers details or your previous interactions with them and, you know, Microsoft coming to pitch you and trying to sell you their CRM platform, it becomes quite difficult to switch across. Arguably, you know, Microsoft would do a lot to facilitate that transition, but it is an organisational upheaval. Today's software platforms become so embedded in an organisation. What would be interesting, and I don't know if you have this number handy, is what their churn rate is and how that churn rate compares to others in the industry. [00:19:42][49.9]

Bryce: [00:19:43] Don't have that number handy, but it would be an interesting metric to have a look at, I would imagine, with anything like this. To your point, I'd be surprised if any of them have high churn rates just given the complexities and cost of feeding out something like this. [00:19:55][12.2]

Alec: [00:19:56] I think in general, you know, if we use this as an opportunity to talk more generally about like stock research and metrics that we're looking for, for subscription businesses, if your churn rate is higher than your competitors and importantly higher than the industry average, like, I would take that as a red flag because that probably says something about your product in comparison to your competitors, either the quality of your product itself or the moat and the defensibility of it. So that's one. [00:20:24][28.7]

Bryce: [00:20:25] And that's a good point. You raise around the subscription side of things, Ren in case it wasn't obvious enough, that is how Salesforce make their money. Yes, this is a subscription service. They build their clients annually. You're seeing their reports as well. They'll say this is how much money we've made this year. However, over the next 12 months, we have X in expected revenue given the contracts that we currently have in place. [00:20:45][20.5]

Alec: [00:20:46] What I would also be interested in and again, I don't know if you've got this handy is like is there a network effect that's created? And there's probably not if they've only got 18 percent of the market. But it would be interesting to know, like if a salesperson is selling using Salesforce and then the business that they're selling into also has Salesforce. Is there like integration that makes it easier for both parties? Because if that was the case, if there was a benefit for both parties to use the same CRM system, then a network effect starts to become really meaningful because then everyone's lives easier if they're using the same platform, I would imagine, given the quality of those. Tech companies, given the fact that Salesforce doesn't have a majority of the market, even though they was first mover, it's probably not like, you know, different companies get a network effect is probably more like intercompany inside a company. But, yeah, I think, look, it's definitely a compelling company. The other thing that I wonder is so that we're the first mover there, they've shown really strong revenue growth recently. Their profit, not so much, but that's okay. I wonder if [00:21:51][65.4]

Bryce: [00:21:52] they are profitable [00:21:52][0.5]

Alec: [00:21:53] now. Profitable. Yeah. I wonder how big the industry can be like. Yeah, obviously they started from nothing. They took market share from the traditional software incumbents. But is there just like a natural limit to how much they can continue to grow? And at some point do they stop growing faster than the rate of growth in the overall market? It becomes more difficult to take customers from, you know, like legacy software providers and stuff like that. And does it become more just a fight for new customers? And does that naturally slow the growth rate? Or do you think that they can continue these rates of, you know, double digit, but not even double digit, like 20 percent, 30 percent revenue growth year on year? [00:22:39][45.6]

Bryce: [00:22:39] A couple of points to that. So they expect the addressable market to grow compound year on year over the next four years at 14 percent. So it's currently sort of sitting around the one 18 sort of 115 billion total addressable market direction in 2024. It's going to be one hundred and seventy six billion. So that's 14 percent compound average growth year on year. Obviously, they outgrowing that at the moment. From their own point of view, I think there are still many, many, many businesses that haven't yet taken on this. [00:23:15][36.1]

Alec: [00:23:16] Yeah, well, I mean, Equity Mates media just uses an Excel document for our CRM. [00:23:21][5.0]

Bryce: [00:23:22] It's going to be inevitable that so many more businesses will have to do this. It's very expensive, obviously, for the larger organisations, but it feels like we're still in quite an infant stage of the market. The other point as well is that the majority of their revenue is coming from America at the moment. They have plans and are expanding into Europe and also APAC as well. [00:23:44][22.1]

Alec: [00:23:45] So IPAC being the Asia Pacific region. [00:23:47][2.4]

Bryce: [00:23:47] Yeah, yeah. So I don't have any worry that it's sort of like a dying market, let's put it that way. Whether or not they're able to continue the growth that they're seeing at the moment, that's a big question. But from what they have saying in terms of their acquisition strategy, I think it's pretty important from from their point of view for that's how they will continue their growth. I don't see why not. [00:24:09][21.3]

Alec: [00:24:09] Yeah, I guess the other interesting thing would be if they've got this core product that is a market leader and is, you know, has high switching costs, potentially a network effect is quite sticky. What's the opportunity to then cross-sell? So like as they acquire more businesses to complement their core CRM product, does that give them an ability to then cross-sell these new subsidiary, these new acquisitions or whatever the products that they're acquiring? Can they then sell them to existing customers and increase their revenue growth that way? You know, like there's plenty of businesses that started with a really core product and then built an ecosystem of products from acquisitions around that core product. So it feels like that's what Salesforce has done here. And it would be interesting to see how long they can continue doing that. Obviously, more and more software, more and more platforms are moving to cloud based. And so if Salesforce is a market leader in that field and they have this foothold in all these companies, then the the ability to cross-sell to continue the growth rates is compelling. [00:25:16][66.8]

Bryce: [00:25:17] Well, to that point, the anticipated growth in their other portfolio of products is actually going to start outgrowing their actual core CRM component. So they have a product called Salesforce platform. Salesforce platform is a solution that allows developers to build and deploy cloud applications. And so these essentially these developers can automate business processes, integrate with external applications and provide layouts to users within the organisation that is growing at 66 percent at the moment. And in terms of, I guess, subscription and revenue from those businesses, Q2. Twenty one, they're expecting the CRM to deliver one point three billion, but they're expecting this sales platform to deliver one point five, which will be the leading of their sort of product suite. So you're exactly right, Ren. They're now utilising and leveraging all the offerings that they have and really integrating that into the products that they offer businesses. [00:26:15][58.6]

Alec: [00:27:07] So Bryce pretty compelling pitch so far, you've really you've pinched Salesforce, a customer relationship management business is business. Yes, it really moved this form of software onto the cloud and has seen some incredible growth in the two decades since. You're pitching a twenty seven billion dollar company. [00:28:34][86.4]

Bryce: [00:28:34] Pretty small. So we have a two trillion dollar debt in the market. This is a small cap. [00:28:41][6.1]

Alec: [00:28:41] So we've covered off what the business does. We've covered off how it rates can, you know, in relation to its competitors, the market dynamics. And then you've given us some reasons why you like it as a company and you think it can continue growing. I think now we get to the real interesting part of the conversation, which is you're not the only person that thinks that's going to continue growing. The market is pricing in some great expectations. Absolutely. And so I want to hear your conversation about valuation, but I want to preface that with its price to earnings ratio to give some context for this discussion, unless you don't want me to reveal that kind. [00:29:22][41.2]

Bryce: [00:29:22] But that's going to be my first attempt at, well, not my first attempt, but it will be the first way that I try and speak about its valuation. But you can lead it. [00:29:30][7.5]

Bryce: [00:29:30] OK, I can relate it with the pay. [00:29:31][1.1]

Alec: [00:29:32] So it's currently trading at a ninety eight price to earnings ratio. Yes. Which is less than Tesla. Yes. More than the average. [00:29:38][6.6]

Bryce: [00:29:39] Yes. [00:29:39][0.0]

Bryce: [00:29:40] You're not wrong. Ren it is from a pay perspective, price to earnings. It is trading pretty high. So let's sort of walk through a couple of ways that you can think about valuing this company. Mind you, I still think this is a growth stock. [00:29:53][13.5]

Alec: [00:29:54] Well, yeah, it's not a [00:29:55][1.0]

Bryce: [00:29:55] value, even though it's [00:29:57][2.3]

Bryce: [00:29:58] current share price is two hundred and forty seven point eighty at time of recording on the 11th of September. And it's seen phenomenal share price growth even since Covid. We've we've seen sort of up 82 percent. But if you look at the last sort of five years, it's sort of two hundred and fifty percent. So a phenomenal growth, obviously reflective of the revenue that you're seeing. [00:30:19][21.6]

Alec: [00:30:20] And it's up 100 percent since Covid lows. Not to not a fact check here, but yeah. Yeah, yeah. And it was up even more. Dipped a little bit. Right. You're right. [00:30:28][8.5]

Bryce: [00:30:29] Sorry. You had Microsoft [00:30:29][0.8]

Alec: [00:30:30] even with Covid, it's up 50 percent year to date. So people should Google like Salesforce share price and just look at the chart. It is it's a pretty phenomenal chart. You'd be stoked if you bought it when an IPO in 2004. [00:30:44][13.9]

Bryce: [00:30:45] Absolutely looks good. So the first way that you can think about valuing a company is relative valuation. And this is where you look at its price relative to competitors in the industry. And you can also look at it in terms of the price of the overall industry as well. And to do that, you can use the price to earnings ratio PE ratio. So as Ren said, Salesforce currently has a pay of 98 SAP, one of its competitors. Thirty six, Oracle 18, Microsoft 36, Adobe 63 and Ren. The software industry where Salesforce sits is trading at a pay of 29. So Salesforce, relative to all of that, looks very, very expensive. Whether or not that actually means anything, you can decide. But that is one way in which I [00:31:32][47.4]

Alec: [00:31:32] want you to tell me if [00:31:34][1.1]

Bryce: [00:31:35] that is one way you can look [00:31:36][1.2]

Bryce: [00:31:36] at valuing a company is relative valuation. But if you're going to do that, you also need to dig a little deeper and understand a bit more about each company, because looking at a price to earnings in itself, a little bit of a chat, Oreshkin. [00:31:47][10.4]

Alec: [00:31:47] Yeah, it's definitely shorthand. It is, I guess not confronting, but it does give you pause when it's trading at two and a half times higher pay than Microsoft. Yeah, one of the notable large trillion dollar companies that is often discussed is overvalued. But Microsoft price to earnings is sort of much more in line with the industry. And Salesforce feels a lot like an outlier out there. So the market has high expectations for it. So I'm interested to say you bring it home and tell me why those expectations are justified. [00:32:24][36.6]

Bryce: [00:32:25] Microsoft is a pretty boring company these days anyway, so [00:32:27][2.3]

Alec: [00:32:28] I love Microsoft, owned it for years now. And I've just got to say that Bill Gates and the team there, you can roll up five day and give me Covid because you developed a great company. [00:32:39][11.8]

Bryce: [00:32:40] Yeah. So the second [00:32:42][1.7]

Bryce: [00:32:42] way that you can look at valuing it is through the discounted cash flow model DCF. So let's just talk through that. I've given three models here for the DCF. I've given a bookcase, a fair case. [00:32:52][9.8]

Alec: [00:32:52] So for people unfamiliar with DCF, quick definition, [00:32:55][2.5]

Bryce: [00:32:55] discounted cash flow is essentially a model where you work out what are you willing to pay now for expected future cash flow of the company? There are a few little intricacies within that taking into consideration your discount rate. Which is a right that you could expect to get if you were to invest your money somewhere else, but other than that, yeah, yeah. [00:33:16][20.8]

Alec: [00:33:17] I mean, like in a nutshell, a dollar today is worth more than a dollar in a year from now. There's a time value of money. So basically you project future earnings or future cash flow and then you discount it back to what it's worth today. Yeah. And so that's what you've done. And you've given us, what, three different cases for Salesforce? Yes. [00:33:36][19.1]

Bryce: [00:33:36] So firstly, I've set my discount rate at eight percent. I know generally it's sort of around the 10 to 12. But I think in this climate, I think eight percent's pretty fair. [00:33:46][9.7]

Alec: [00:33:46] Why don't you just set the risk free rate the 10 year government bond, Steiglitz cheapest. [00:33:51][4.7]

Bryce: [00:33:52] So I set the discount [00:33:53][0.5]

Bryce: [00:33:53] rate at eight percent. The bull case is, I'm assuming that free cash flow over the next 10 years, 31 percent, which is their current five year compound, average growth, 10 year, 10 year. So that is going to give us a price of 342 Dollars, [00:34:10][16.2]

Alec: [00:34:10] which is better than the current share price. Exactly. [00:34:12][1.8]

Bryce: [00:34:12] So if you are very bullish on sales force and believe that they can continue their current free cash flow as it stands over the next 10 years, then, you know, you might be looking at a stock that is undervalued. Is that likely? Whoknows Ren fair case. I've put the free cash flow at twenty five percent, which is not unreasonable, and that comes out at a price of two twenty seven. So fairly in line with what it's trading at. Now, the bear case is if this thing sinks a little and they can't continue to generate the growth in the free cash flow that they have been dropped to around 18 percent. You're looking at a stock price today of 139, which is 80 per cent below what we're currently trading. [00:34:57][44.8]

Alec: [00:34:58] I just love the fact the bear case for this company is 18 percent annual growth for the next 10 years. [00:35:05][6.9]

Bryce: [00:35:05] Yeah, well, that is me, assuming that they can at least rise with the general tide of the industry, which they're expecting to be 14 percent. If they can just stay ahead of the game, then I mean, 18 percent. [00:35:19][13.4]

Bryce: [00:35:19] And that's the Big Bear case. [00:35:22][2.4]

Bryce: [00:35:23] Well, I mean, if it's less than that, then it's game over really. Like something significant is happening right [00:35:28][5.8]

Bryce: [00:35:30] now to getting Audrie's actually getting out. If you're looking [00:35:35][4.8]

Bryce: [00:35:35] at it from a bull perspective, 31 percent free cash flow, 342 is your dollar. But I'm going in at a fair price. So I think it's fairly priced. [00:35:42][6.8]

Alec: [00:35:43] OK. So you think it will continue to grow its free cash flow at twenty five percent a year for the next 10 years? [00:35:50][6.7]

Bryce: [00:35:50] Look, I'm not going to say yes or no to that because that's [00:35:53][2.7]

Bryce: [00:35:54] not what we're here for. [00:35:55][1.2]

Alec: [00:35:56] But is that not is that not all this episodes that [00:35:58][2.1]

Bryce: [00:35:59] I'm [00:35:59][0.0]

Bryce: [00:35:59] confident that at least for the next five years they can sit around that price? I mean, their 10 year is thirty one percent. So it's pretty phenomenal growth and the growth of the industry as we've spoken about the leader in a they're aggressive in what they're doing. I don't see why it's true on feasible for them to stay around that. Right. They have shot up in price over the last few days because of the Q2 earnings. But that is my only hesitation with this stock, is if we do put it in the portfolio right now, it feels like there's going to be a bit of a sell off on it, just as people take some profits and it's sort of realigns. But who knows what's going to happen then? Ren the other way you can look at it is from the reverse discount cash flow. And without going into it too much, it's essentially saying, what is the growth rate required for the current stock price? The growth rate required Ren is twenty six percent. So I mean, it's what it's doing. Yeah, it [00:36:54][55.5]

Bryce: [00:36:55] busted speechless reference for the [00:36:59][4.7]

Alec: [00:37:00] first time in two hundred and ninety episodes. I've got nothing to Bryce. So look, I think it's ambitious. [00:37:05][4.9]

Bryce: [00:37:07] The stock price [00:37:07][0.6]

Bryce: [00:37:08] or the growth [00:37:08][0.3]

Alec: [00:37:08] rate, the expectations built into the stock, I feel I mean things have to go very well because for me it's one the industry is growing at half the rate that you need. It's free cash flow to grow. So by definition, it means it needs to take market share off its competitors. And then when I think about who its competitors are, companies like Microsoft and stuff like that are incredibly well-run companies with incredibly good technological talent. But also, I think, you know, to that cross-selling conversation we're having before almost every organisation in the world has Microsoft embedded in its organisation through Microsoft Office. And so in the same way that Microsoft Haimes has been able to just dominate the growth rate of zoom in video conferencing, because Tames was a cross-selling opportunity for the Microsoft salespeople that was selling office products to big organisations, teams was an easy ad on it integrated into existing systems. And teams were just able to rocket up their growth rate and outpace zone, I would expect really anything that Microsoft develops gives the salespeople a very fair crack at selling it into any organisation on that whole cross-selling. We're already here. We're already integrated point. So for me, that does give me pause. But in the spirit of you always nail the stock picks on this [00:38:35][86.9]

Bryce: [00:38:35] show and no know you [00:38:36][0.9]

Alec: [00:38:36] have an uncanny knack of whatever you hit. Turning to gold. [00:38:40][3.9]

Bryce: [00:38:41] Not sure. Not sure. Well, let [00:38:43][2.1]

Bryce: [00:38:43] me just finish with a few concluding. [00:38:44][0.9]

Alec: [00:38:45] OK. OK, yeah. And then I'll give you money like you. [00:38:47][2.5]

Bryce: [00:38:48] My gut feel tells me that it's too hot right now. I think it's too hot. But then if we stick with the I guess the thesis and the whole ethos of this show, it's that if you're taking a longer term approach, are you really trying to time the market when you get in? I mean, that's when it sort of comes down to the intricacies of when to buy. Are you paying for something that is too expensive? But just some concluding thoughts generates a lot of revenue and great cash flow, which in a business we like to say it's in a growing industry, which is also great to see. It's very well positioned in that industry. And I think that in terms of its overall strategy, its positioning itself to take advantage of this rising tide. So from a macro sense, this business makes sense. I can see what they're doing. I can see that it's successful. People love using it. So from a product point of view, they've sort of got it down pat. Whether or not they can keep their competitors at bay and maintain that market share and growth rate is the big caveat to this whole thing. [00:39:51][62.8]

Alec: [00:39:51] I'm just looking at this chart and I'm looking at what it was trading at in March. So it was trading at one hundred and twenty four dollars in March. And that's meaningfully lower than your bear case like. Yeah, this was the kind of stock that we should have bought in March [00:40:05][13.4]

Bryce: [00:40:06] where we should have bought a lot of stocks, [00:40:07][1.3]

Bryce: [00:40:08] a couple, anything in March. [00:40:09][1.2]

Bryce: [00:40:10] But even if you look at what it was trading before at 200, I mean, if you'd probably plugged it into a DCF at that point in time, you would have probably come out thinking that it was reasonably valued. [00:40:22][12.1]

Alec: [00:40:22] Well, you would have. [00:40:23][0.5]

Bryce: [00:40:23] I would have, yeah. [00:40:24][0.6]

Bryce: [00:40:25] But even with its current growth [00:40:26][1.0]

Alec: [00:40:26] rate, I put in the industry growth rate and a 10 percent discount rate and the number that I got was lower. But look, I'm going to back you in. You know, this is a learning exercise. I'm not very confident in my first pick. By the way, I am kicking myself about my first pick. I was tossing up between two companies, Cleanaway and Magellan chose Magellan Magellan down a little bit since I pitched it, but it will be okay. Cleanaway shot up like a week after we released that episode. It released its earnings and it was up like and it's up 10 percent or something since then. Anyway, that's that's a complete story. [00:41:02][35.6]

Bryce: [00:41:02] So I'm going to [00:41:04][2.0]

Bryce: [00:41:04] back you in investing [00:41:05][0.5]

Bryce: [00:41:05] committee is saying yes, [00:41:06][0.8]

Alec: [00:41:07] although I am tempted to throw it over to the Facebook group. [00:41:10][3.1]

Bryce: [00:41:10] I think for the sake of the exercise, let's throw it to the [00:41:13][2.4]

Bryce: [00:41:13] Facebook group, OK? Yeah. All right. All right. [00:41:14][1.8]

Bryce: [00:41:15] Look, as I said, macro, it makes sense to me. I'd love to hear what our listeners think about the pricing of it. And perhaps there's some people out there who work for Salesforce or perhaps there's some people who have a bit more knowledge of this space in general. Would love to hear from you. Head over to our Facebook group. And you know what? Right after this episode, I'm going to put a poll and that should help us decide on whether or not this makes it past the investment committee and into our satellite portfolio. [00:41:43][27.8]

Alec: [00:41:43] So we'll say rules of the game are, what, 48 hours, 24 hours after we put the poll up, we close it and it's just no caveats or changes from there. Whatever the Facebook group decides is what we do in or out. [00:41:57][13.5]

Bryce: [00:41:57] Yes, I guess so. [00:41:58][0.9]

Bryce: [00:41:58] 48 hours, 48 hours. [00:42:00][1.4]

Alec: [00:42:00] So if you're listening to this, jump over to the Facebook group, Facebook dot com slash groups, slash Equity Mates. [00:42:06][5.8]

Bryce: [00:42:07] Why do you always laugh? That's the you are says Facebook's in euros. [00:42:11][4.8]

Alec: [00:42:13] Or if you type that into the URL, you get exactly where you may [00:42:16][3.4]

Bryce: [00:42:16] click on the group's button and you say that. [00:42:18][1.9]

Alec: [00:42:19] So Facebook dot com slash group slash Equity Mates. Join the group if you haven't already. If you are in the group Kiva, leave a comment. Tell us what you think and we will include it in the watch list or we will include it in the portfolio. It's definitely an interesting company. It's definitely one that I look. It's not going anywhere I like. The downside is in terms of risk, it's really a valuation risk more than anything else. It's not like you're pitching some, you know, turnaround that may not recover or some, you know, specky the downside risk is the business isn't viable. There's no doubt that this is a great business. But with so many great businesses, the valuation risk is there. And the more I learn about the stock market and market history, especially in the last two decades, the more I realise that valuation risk would have been the reason for so many people not. To buy so many good stocks like Amazon's always traded at a high pace, always. [00:43:12][53.4]

Bryce: [00:43:13] Yeah, it's just dumb. Never have bought [00:43:14][1.7]

Alec: [00:43:15] it. Yeah. So for me, you pay for quality. Do you pay this much for quality? The Facebook group will decide. [00:43:22][6.8]

Bryce: [00:43:22] The Facebook group will decide to decide. [00:43:25][2.5]

Bryce: [00:43:25] Nice Ren will. Glad I got that one out of the way. I was sweating bullets us coming at me hard and [00:43:32][6.7]

Bryce: [00:43:34] not all fun [00:43:35][0.4]

Bryce: [00:43:35] and games. But look, I think if anything, anyone's to take anything out of that. It's just look, there's many ways to research these sorts of things, many ways to value a company. And, you know, someone could be listening and could have done it a completely different way. And we'd love to hear from you if that is the case. So please keep your submissions coming in. We'll get you on the show. We've now got the tech worked out that we can give you guys a buzz quite easily and have a quick ten minute convo if that's what you want to do. So please hit us up at Contact@equitymates.com or through any of the social channels. We'd love to hear from you. [00:44:05][29.6]

Alec: [00:44:05] Oh, we've got a contact form on our website as well. So, yeah. And look, if you felt that some of this discussion was over your head, we've got a twelve part back to basics. Everything you need to know to get started series imaginatively called Get Started Investing feed. So give that a listen. And yeah, hopefully this conversation was useful and we will keep doing this. And a trend that I am watching now is going to be a where are you going to get more assertive with each [00:44:34][29.0]

Bryce: [00:44:34] other and start ripping each other's ideas a little bit? Oh, we can't we can't do that. We always pay for this. Yeah. So a loving game. So that's it. [00:44:43][8.6]

Alec: [00:44:43] It's all a learning experience. We're learning alongside everyone and I'm loving it. I'm loving getting into the individual stock. [00:44:48][5.4]

Bryce: [00:44:49] Yeah, it's good fun. Nice Ren. We'll leave it there. As always, looking forward to trading stocks next week. [00:44:53][4.1]

Alec: [00:44:53] Sounds good. [00:44:53][0.3]

Speaker 4: [00:44:54] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything you hear in Equity Mates investment podcast with general advice on the content has been prepared, not knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment podcast May nineteen positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:44:54][0.0]

[2456.9]

rom beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:43][15.5]

Alec: [00:01:44] I'm very good, Bryce. I am so excited for this episode because after trying to avoid it for so long, we're finally going to hear your vaunted first pitch for our hypothetical portfolio. [00:01:57][13.7]

Bryce: [00:01:58] I don't know why you think I've been trying to avoid it. It's just the flow of the episodes haven't allowed it. And is that right? Yeah. [00:02:05][6.9]

Bryce: [00:02:06] I'm pleased to announce that I'm not going to be pitching a stock today. Hopefully you come with the content idea. Yeah. [00:02:13][7.2]

Alec: [00:02:13] You've got listeners suggestions that you want to pass off as your own. [00:02:16][2.9]

Bryce: [00:02:17] Not bad. Not bad. [00:02:19][2.0]

Bryce: [00:02:19] So, yes, Ren, we are going to be doing a satellite stock pitch for our hypothetical portfolio. Well, I am going to be doing a satellite stock pitch for our hypothetical portfolio [00:02:29][9.4]

Alec: [00:02:29] satellite stock pitch. Sounds like you're going to be pitching a satellite stock like a spy satellite space. [00:02:36][6.6]

Bryce: [00:02:36] No, it's [00:02:36][0.4]

Alec: [00:02:37] not your pitching. So it's going to be an Australian retail stock that is staying strong. Online sales growth, [00:02:43][6.6]

Bryce: [00:02:44] you know, hey, you've got my thesis worked out. [00:02:47][3.0]

Bryce: [00:02:48] I actually did think about doing some of those stocks, but I thought that's just really boring and straightforward. You know, [00:02:54][6.0]

Alec: [00:02:55] how like it's all about building a personal brand. Your personal brand is the retail whisperer. [00:02:59][4.3]

Bryce: [00:02:59] Yeah, but [00:03:00][0.3]

Bryce: [00:03:00] yeah. Well, look, maybe this is going to be different and I can move away from that brand, but we'll say, [00:03:05][4.9]

Bryce: [00:03:06] you know, all [00:03:06][0.5]

Alec: [00:03:07] of this this will be the first stock you pitch that just doesn't come [00:03:10][2.7]

Bryce: [00:03:10] off. True. Well, nice. [00:03:11][1.3]

Bryce: [00:03:11] So looking forward to pitching my stock before we do a bit of housekeeping if you are new to the show. Welcome to Equity Mates. Really happy to have you involved in the community and on the journey of investing. We have a 12 part series, standalone series called Get Started Investing feed, which has all the fundamentals that we believe will give you the confidence you need to get started in the market. So please go and listen to that. It is a separate podcast. Search the new podcast player now get started investing and recommend you go and listen to that and then come and join us on the show if you are right at the start of your investing journey. And also a big shout out to all of you out there who are sending in submissions for the hypothetical portfolio. We've had some awesome ones come in. One came in today that we're pretty excited to be looking at in further detail. [00:03:55][44.1]

Alec: [00:03:56] So we'll try and get them on the show so we won't talk about it here. But it was three paragraphs just submitted on our Contact US form on our website. And we both read it like this is great. Like it was a clear pitch, just some simple maths. Yeah, but it was compelling, very compelling. [00:04:12][16.6]

Bryce: [00:04:13] And that's what we're after. As we said, the thesis can be 50 words. It can be 5000 words like Ren likes to write [00:04:18][5.2]

Alec: [00:04:19] or the thesis could be a name like it could be [00:04:21][2.3]

Bryce: [00:04:21] whatever it could be, whatever you want, but keep them coming [00:04:23][2.2]

Bryce: [00:04:24] in. We do recognise them coming in. We just can't respond to all of them at once. But please, we do endeavour to do the best we can to reach out to you guys who are sending them in. And we're hopefully going to be involving more and more of you on the show as time goes on. So stay tuned for that. [00:04:38][14.8]

Alec: [00:04:39] So I think it's worth just clarifying or just resetting where we're at for people who've just picked up this conversation around the hypothetical portfolio, we started this hypothetical portfolio in twenty seventeen just to try and learn and we've revised it for the same reason. Nothing we pitch here. None of the stocks, none of the ETFs we talk about are buy or sell recommendations. This is literally just the most practical way we could try and apply what we've learnt and what we are continuing to learn on the podcast. So Bryce is stock pitch here is nothing more than him trying to apply what he's learnt over the last few years. Same with which [00:05:14][34.9]

Bryce: [00:05:14] might not be a lot, by the way. [00:05:15][0.8]

Alec: [00:05:16] Same with any guests that we get on the show or anything like that. This is all just about a collaborative learning experience. Some of those stocks are going to do really well, especially if they're Bryce as retail stocks. Some of these stocks are going to do terribly. But for us, we find that there's no better way to learn than to jump in the deep end and, you know, make that first trade and get actually started investing. That's why we called the spinoff podcast Get Started Investing feed. Um, and so, yeah, I think that's an important reminder. You can track the portfolio on our website, Equity Mates dot com slash portfolio. We've had a few technical issues. I think as we record the website, that page on the website is down, but it will be back up. Oh, but yeah, what we want to do is basically just take the community that we've got here and use this as a platform to share ideas and to introduce people to stocks. We want to get introduced to stocks what you haven't heard of and just keep learning and try and learn in a really practical way. So that all being said, I am very excited to get Bryce as first stock pitch of twenty twenty underway and Ren. [00:06:22][66.1]

Bryce: [00:06:23] I want to caveat it with you. [00:06:24][1.5]

Bryce: [00:06:26] These are officially the Equity Mates investing committee meetings, these pictures, as with all investing committee meetings, stock pictures don't necessarily always make it into the portfolio. [00:06:37][10.7]

Bryce: [00:06:37] OK, OK, so you do [00:06:39][1.7]

Bryce: [00:06:40] hold 50 percent voting rights at the moment. If you don't want this to go into the portfolio, that is fine. I won't take offence to. [00:06:46][6.2]

Alec: [00:06:46] It wasn't the rule. If we disagree, we would put it to the audience in the Equity Mates community. Yeah. [00:06:53][6.9]

Bryce: [00:06:53] So if we disagree, I have my theory about this stock and whether or not it should go in the portfolio right now. [00:06:59][5.3]

Bryce: [00:06:59] However, we can chat about that later. And I'd [00:07:01][1.9]

Bryce: [00:07:01] love to take [00:07:01][0.4]

Bryce: [00:07:02] this one to see how I. [00:07:04][2.2]

Alec: [00:07:04] Look, I'm not going to lie. It is very tempting to flat out refuse to add whatever you are about to pitch just so we can test out the poll in the face. [00:07:14][9.6]

Bryce: [00:07:14] But it's not a bad theory. We should give it a crack. Yeah. Let's say what you think of the pit. [00:07:18][3.7]

Alec: [00:07:18] I expect to be blown away by this pit you've been talking about all day. [00:07:21][2.8]

Bryce: [00:07:22] Oh, I've been cowering away in my room and trying to figure out this damn thesis template that you put together, which is way too confusing. I'm more of a gut feel investor. You're a numbers man. So so everything I [00:07:35][13.0]

Bryce: [00:07:35] say and do here is based on intuition and gut feeling. [00:07:38][3.2]

Alec: [00:07:39] Is that the biggest learning you've had for the last three years? [00:07:41][2.0]

Bryce: [00:07:41] Yes. Go with your gut. I got to know who you are [00:07:43][2.5]

Bryce: [00:07:44] as an investor. So Ren today I'm pitching an American company listed over obviously in the States. The company is Salesforce Stockticker CRM. [00:07:52][8.5]

Alec: [00:07:53] Yeah, I like the play that they've done with the Tik-tok CRM [00:07:56][2.6]

Bryce: [00:07:57] Customer Relationship Management. Uh, we'll get into that in a second. Current market cap of two hundred and twenty seven billion, so reasonably sized company revenue trailing 12 months is nineteen point three billion. It's got a revenue compound, average growth of twenty six percent. And we'll get into a few of the financials a little bit later on [00:08:19][21.4]

Alec: [00:08:19] just to explain that term compound annual growth rate is the average rate. It's grown per year. So over the past five years, it's grown its revenue on an average of twenty six percent a year. Yeah, that's strong. It's great. [00:08:31][12.0]

Bryce: [00:08:32] This is a cash machine. Takes my interest and that's my pitch. What do you think? So let's get a [00:08:38][6.3]

Bryce: [00:08:38] bit about the company. But first, I just want to share a bit of a story as to how Salesforce started. I like the company. They're quite an aggressive company in the space. [00:08:48][9.7]

Alec: [00:08:49] You are noted for your aggression. [00:08:50][1.5]

Bryce: [00:08:51] Yes, that is true. Thank you. [00:08:52][1.4]

Bryce: [00:08:52] I am. Have I? But yes, they're quite an [00:08:56][3.4]

Bryce: [00:08:56] aggressive company in in terms of their strategy, which I'll touch on in a little bit. But they're also a very innovative company, especially when it comes to their marketing side of things. So let me tell you a bit of a story. The CEO of a tiny Start-Up that no one had heard of paid actors. [00:09:10][14.7]

Bryce: [00:09:11] This is true and this is true. Why are you laughing? Just the way the story started. This is this is how I pitch. All right. I didn't write this story, [00:09:20][8.9]

Bryce: [00:09:20] by the way. This is true. This is a true story. I mean, it's a true story. The CEO of a tiny Start-Up that no one had heard of paid actors to carry anti software signs. They marched in front of a user conference for Siebel Systems, which sold customer relationship management software. Later that year, Benioff, the CEO, hosted a military themed party where guests threw pieces of software into trash bins. The stunts gained attention, but no one really believed that Benioff Start-Up Salesforce could take on giant software companies. Business Insider wrote an article on the protest and called Salesforce The Ant at the Picnic. The ant at the picnic has helped to create a two hundred and fifty billion dollar global market benefits company was built around one main idea that software should be delivered 24/7 to people over the cloud. Salesforce was the first. Salesforce was the first company to do this. In the late 90s, companies like Oracle and SAP were selling software to businesses that had to be installed and updated on premise. Now Oracle, SAP and the rest of the world are belatedly building cloud products, trying to catch on to the movement that Salesforce has started. So what an open on it is. [00:10:34][74.3]

Alec: [00:10:35] It is maybe for people who are unfamiliar with the distinction between like cloud based software as a service and traditional software, maybe. Can you just explain that distinction? [00:10:44][9.1]

Bryce: [00:10:45] We are about to have a guest on who will talk us through this cloud in more detail. So, again, I won't take away from you. [00:10:51][6.5]

Bryce: [00:10:52] I take away from them. [00:10:52][0.7]

Bryce: [00:10:53] But as as it says here, traditionally companies have had to install software, I guess, physically through their hardware systems on premise, through the their networks. Cloud really takes away all of that and allows you to access really any software through browsers wherever you are. That is in its most basic form. Yeah. So what is Salesforce? Will Salesforce provide cloud based CRM, which is customer relationship management? Take a step back. What is that? It is one of many different approaches that allow a company to. Manage and analyse its own interactions with their customers, using data analysis about customers history, really to improve the business relationships with customers, focussing on really retention and also ultimately driving sales growth. So this is where sales force really come in. They provide. Well, they started out providing a system that allows businesses to have customer relationship management in the cloud. So one important aspect of CRM approach is the systems of CRM compile data from a range of different communication channels, including, you know, telephone, email. And it's an all in one sort of system. And the good thing about Salesforce is that they are the number one provider of CRM in the space at the moment, dominating market share in terms of total revenue and customers at about 18 percent market share, their nearest competitors hold between sort of five to six percent. So they absolutely dominate in this area. Salesforce provide not only CRM, but they now have solutions, native solutions in marketing, e-commerce, as well as a service cloud for customer support. So they're really expanding their product suite so companies can come on and have a one stop solution that provides all the necessary sort of tools that they need in the cloud to manage their customer relationships. Any questions thus far? Ren. [00:12:49][115.9]

Alec: [00:12:49] No. I'll let you keep doing this spiel and then I'll jump into some questions. [00:12:53][3.6]

Bryce: [00:12:54] Awesome. So why do I like Salesforce? For me, the first thing is that it's an industry that is growing quite rapidly. It's the software as a service industry and cloud, I guess, computing and the cloud sort of infrastructure. You say Adewusi is absolutely growing and we're seeing more and more businesses and corporate spending coming in. And in terms of digital transformation, demand for next gen sort of collaboration has also been increased by Covid. And Salesforce is in a spot at the moment that allows them to really harness the growth that's coming through. And more and more companies are investing in business analytics and artificial intelligence tools that really help them understand who their customers are and drive customer acquisition, retention and sales. They're also an aggressive acquirer of other companies Ren. So in 2013 they acquired ExactTarget in 2016, Demandware in 2018, meals soft in 2019. Tablo. They do publicly state that it is part of their strategy to acquire these companies that play in spaces that they don't necessarily own, but they use to bring on and build their product portfolio so that I guess they can then go to their customers and their clients and offer them an all in one solution. This is driving a lot of their growth and it could be argued that, you know, what is their organic growth versus that growth coming from acquisition. But considering it's part of their strategy, it's something that I guess needs to be considered, but so far to date have been very successful in the acquisitions that they've made. And I think the biggest pace as well is that they allow a bit of an open source platform where you can really go on and manipulate the Salesforce platform so that it really works for your business. A lot of the products from their competitors are sort of out of the box solutions, whereas Salesforce really allow you to create products that work for your business. So big focus on international markets building an ecosystem bigger than their competitors. And interestingly, they've just been added to the Dow Jones Industrial Average replacing ExxonMobil in the 30 stock index. For me, it's a company that is just generating huge amounts of cash. They're free. Cash flow over the last ten years has been growing at 31 percent. So they're absolutely smashing out free cash flow. Revenue has been growing significantly. They just reported Q2 revenue of five billion profit on that, I think was just under two. So pretty significant margins. And yeah, I think it's just one of those companies that for me feels like it's in a space that's consistently growing and they're at the top of the market. So from a competitive advantage point of view, it's going to take a lot for competitors to match the product offering that they have. [00:15:48][173.9]

Alec: [00:15:48] It's an interesting company and it's a good pitch. [00:15:51][2.6]

Bryce: [00:15:52] You know my best part. [00:15:52][0.9]

Alec: [00:15:53] Well, you best so far, I'm sure. [00:15:55][1.8]

Bryce: [00:15:55] Sure. [00:15:55][0.0]

Alec: [00:15:56] So let's start with the industry as a whole. So you said it's the number one CRM customer relationship management platform by far. Yeah, by far. And it's got 18 percent market share. So it's the number one with less than a fifth of the market. So maybe can you expand on the competitive dynamics a little bit? [00:16:16][19.6]

Bryce: [00:16:16] Yeah. So from what I understand, so their biggest competitor is the likes of SAP, Oracle. Microsoft is really starting to play in this space A. OBE, and between them, they're reasonably close in terms of market share or with about sort of five or six percent from what I saw in the latest report. [00:16:33][17.5]

Alec: [00:16:34] So there must be an extremely long tail of providers. [00:16:37][3.3]

Bryce: [00:16:38] Yeah. So there is no doubt that there are more and more competitors, aggressive competitors coming into this space quickly. It's a growing industry. So you're just seeing more start-ups driven by this sort of technology, really focussing in on particular components of what Salesforce offer. The difference being that they may focus on just CRM, whereas Salesforce is now doubling down and really building out a full suite of products. [00:17:03][25.4]

Alec: [00:17:04] Yeah, so that was going to be my follow up question. It's like if there's such competition in the industry, I guess the broad question is what's their model? How are they defensible? How they better than the competition? And I guess the two sub questions in that one, how do they attract new market share and to how do they retain their existing customers [00:17:23][19.3]

Bryce: [00:17:24] so that fifty four thousand people working for them, they pour money into, I think, around 14 percent of rêve. They pour into research and development. They're obviously aggressive acquirers of other companies as well. But from what I understand internally, they have a pretty aggressive sales team themselves that have been voted. The world's best workplace number of years running now attracts talent. But yeah, I think they're moed. So I went on and actually looked at the number of customer reviews of Salesforce versus some of the competitors. [00:17:55][31.3]

Alec: [00:17:56] That's a good research to [00:17:58][1.6]

Bryce: [00:17:58] say what was going on. Why are people actually using Salesforce over a number of other applications? One reason is it's almost like an industry standard now. So if you have Salesforce, it's easy to get people to come and work for you in some respects because Salesforce is kind of everywhere at this stage, too. It's the only platform that has full stack. As I've said before, it has everything that you need to complete the full sort of circle from marketing through ecommerce, through. You can build your own apps in the platform. And I think the flexibility of the platform is sort of unrivalled compared to some of their competitors. I could be sort of speaking out of school because I haven't done as much research on the likes of what Microsoft is bringing to the table at the moment. But from what I understand, people who are using it, that's what they sort of say. What is more appealing than some of the competitors coming to the market at the moment. [00:18:51][53.7]

Alec: [00:18:52] So to add to that, I think a lot of these software as a service, businesses become quite embedded in an organisation and then the switching costs are quite high for an organisation. So if you're a company like Arnett's or someone who's trying to sell biscuits into retailers and stuff like that, if you're tracking your sales on Salesforce and you've got, you know, all your customers details or your previous interactions with them and, you know, Microsoft coming to pitch you and trying to sell you their CRM platform, it becomes quite difficult to switch across. Arguably, you know, Microsoft would do a lot to facilitate that transition, but it is an organisational upheaval. Today's software platforms become so embedded in an organisation. What would be interesting, and I don't know if you have this number handy, is what their churn rate is and how that churn rate compares to others in the industry. [00:19:42][49.9]

Bryce: [00:19:43] Don't have that number handy, but it would be an interesting metric to have a look at, I would imagine, with anything like this. To your point, I'd be surprised if any of them have high churn rates just given the complexities and cost of feeding out something like this. [00:19:55][12.2]

Alec: [00:19:56] I think in general, you know, if we use this as an opportunity to talk more generally about like stock research and metrics that we're looking for, for subscription businesses, if your churn rate is higher than your competitors and importantly higher than the industry average, like, I would take that as a red flag because that probably says something about your product in comparison to your competitors, either the quality of your product itself or the moat and the defensibility of it. So that's one. [00:20:24][28.7]

Bryce: [00:20:25] And that's a good point. You raise around the subscription side of things, Ren in case it wasn't obvious enough, that is how Salesforce make their money. Yes, this is a subscription service. They build their clients annually. You're seeing their reports as well. They'll say this is how much money we've made this year. However, over the next 12 months, we have X in expected revenue given the contracts that we currently have in place. [00:20:45][20.5]

Alec: [00:20:46] What I would also be interested in and again, I don't know if you've got this handy is like is there a network effect that's created? And there's probably not if they've only got 18 percent of the market. But it would be interesting to know, like if a salesperson is selling using Salesforce and then the business that they're selling into also has Salesforce. Is there like integration that makes it easier for both parties? Because if that was the case, if there was a benefit for both parties to use the same CRM system, then a network effect starts to become really meaningful because then everyone's lives easier if they're using the same platform, I would imagine, given the quality of those. Tech companies, given the fact that Salesforce doesn't have a majority of the market, even though they was first mover, it's probably not like, you know, different companies get a network effect is probably more like intercompany inside a company. But, yeah, I think, look, it's definitely a compelling company. The other thing that I wonder is so that we're the first mover there, they've shown really strong revenue growth recently. Their profit, not so much, but that's okay. I wonder if [00:21:51][65.4]

Bryce: [00:21:52] they are profitable [00:21:52][0.5]

Alec: [00:21:53] now. Profitable. Yeah. I wonder how big the industry can be like. Yeah, obviously they started from nothing. They took market share from the traditional software incumbents. But is there just like a natural limit to how much they can continue to grow? And at some point do they stop growing faster than the rate of growth in the overall market? It becomes more difficult to take customers from, you know, like legacy software providers and stuff like that. And does it become more just a fight for new customers? And does that naturally slow the growth rate? Or do you think that they can continue these rates of, you know, double digit, but not even double digit, like 20 percent, 30 percent revenue growth year on year? [00:22:39][45.6]

Bryce: [00:22:39] A couple of points to that. So they expect the addressable market to grow compound year on year over the next four years at 14 percent. So it's currently sort of sitting around the one 18 sort of 115 billion total addressable market direction in 2024. It's going to be one hundred and seventy six billion. So that's 14 percent compound average growth year on year. Obviously, they outgrowing that at the moment. From their own point of view, I think there are still many, many, many businesses that haven't yet taken on this. [00:23:15][36.1]

Alec: [00:23:16] Yeah, well, I mean, Equity Mates media just uses an Excel document for our CRM. [00:23:21][5.0]

Bryce: [00:23:22] It's going to be inevitable that so many more businesses will have to do this. It's very expensive, obviously, for the larger organisations, but it feels like we're still in quite an infant stage of the market. The other point as well is that the majority of their revenue is coming from America at the moment. They have plans and are expanding into Europe and also APAC as well. [00:23:44][22.1]

Alec: [00:23:45] So IPAC being the Asia Pacific region. [00:23:47][2.4]

Bryce: [00:23:47] Yeah, yeah. So I don't have any worry that it's sort of like a dying market, let's put it that way. Whether or not they're able to continue the growth that they're seeing at the moment, that's a big question. But from what they have saying in terms of their acquisition strategy, I think it's pretty important from from their point of view for that's how they will continue their growth. I don't see why not. [00:24:09][21.3]

Alec: [00:24:09] Yeah, I guess the other interesting thing would be if they've got this core product that is a market leader and is, you know, has high switching costs, potentially a network effect is quite sticky. What's the opportunity to then cross-sell? So like as they acquire more businesses to complement their core CRM product, does that give them an ability to then cross-sell these new subsidiary, these new acquisitions or whatever the products that they're acquiring? Can they then sell them to existing customers and increase their revenue growth that way? You know, like there's plenty of businesses that started with a really core product and then built an ecosystem of products from acquisitions around that core product. So it feels like that's what Salesforce has done here. And it would be interesting to see how long they can continue doing that. Obviously, more and more software, more and more platforms are moving to cloud based. And so if Salesforce is a market leader in that field and they have this foothold in all these companies, then the the ability to cross-sell to continue the growth rates is compelling. [00:25:16][66.8]

Bryce: [00:25:17] Well, to that point, the anticipated growth in their other portfolio of products is actually going to start outgrowing their actual core CRM component. So they have a product called Salesforce platform. Salesforce platform is a solution that allows developers to build and deploy cloud applications. And so these essentially these developers can automate business processes, integrate with external applications and provide layouts to users within the organisation that is growing at 66 percent at the moment. And in terms of, I guess, subscription and revenue from those businesses, Q2. Twenty one, they're expecting the CRM to deliver one point three billion, but they're expecting this sales platform to deliver one point five, which will be the leading of their sort of product suite. So you're exactly right, Ren. They're now utilising and leveraging all the offerings that they have and really integrating that into the products that they offer businesses. [00:26:15][58.6]

Alec: [00:27:07] So Bryce pretty compelling pitch so far, you've really you've pinched Salesforce, a customer relationship management business is business. Yes, it really moved this form of software onto the cloud and has seen some incredible growth in the two decades since. You're pitching a twenty seven billion dollar company. [00:28:34][86.4]

Bryce: [00:28:34] Pretty small. So we have a two trillion dollar debt in the market. This is a small cap. [00:28:41][6.1]

Alec: [00:28:41] So we've covered off what the business does. We've covered off how it rates can, you know, in relation to its competitors, the market dynamics. And then you've given us some reasons why you like it as a company and you think it can continue growing. I think now we get to the real interesting part of the conversation, which is you're not the only person that thinks that's going to continue growing. The market is pricing in some great expectations. Absolutely. And so I want to hear your conversation about valuation, but I want to preface that with its price to earnings ratio to give some context for this discussion, unless you don't want me to reveal that kind. [00:29:22][41.2]

Bryce: [00:29:22] But that's going to be my first attempt at, well, not my first attempt, but it will be the first way that I try and speak about its valuation. But you can lead it. [00:29:30][7.5]

Bryce: [00:29:30] OK, I can relate it with the pay. [00:29:31][1.1]

Alec: [00:29:32] So it's currently trading at a ninety eight price to earnings ratio. Yes. Which is less than Tesla. Yes. More than the average. [00:29:38][6.6]

Bryce: [00:29:39] Yes. [00:29:39][0.0]

Bryce: [00:29:40] You're not wrong. Ren it is from a pay perspective, price to earnings. It is trading pretty high. So let's sort of walk through a couple of ways that you can think about valuing this company. Mind you, I still think this is a growth stock. [00:29:53][13.5]

Alec: [00:29:54] Well, yeah, it's not a [00:29:55][1.0]

Bryce: [00:29:55] value, even though it's [00:29:57][2.3]

Bryce: [00:29:58] current share price is two hundred and forty seven point eighty at time of recording on the 11th of September. And it's seen phenomenal share price growth even since Covid. We've we've seen sort of up 82 percent. But if you look at the last sort of five years, it's sort of two hundred and fifty percent. So a phenomenal growth, obviously reflective of the revenue that you're seeing. [00:30:19][21.6]

Alec: [00:30:20] And it's up 100 percent since Covid lows. Not to not a fact check here, but yeah. Yeah, yeah. And it was up even more. Dipped a little bit. Right. You're right. [00:30:28][8.5]

Bryce: [00:30:29] Sorry. You had Microsoft [00:30:29][0.8]

Alec: [00:30:30] even with Covid, it's up 50 percent year to date. So people should Google like Salesforce share price and just look at the chart. It is it's a pretty phenomenal chart. You'd be stoked if you bought it when an IPO in 2004. [00:30:44][13.9]

Bryce: [00:30:45] Absolutely looks good. So the first way that you can think about valuing a company is relative valuation. And this is where you look at its price relative to competitors in the industry. And you can also look at it in terms of the price of the overall industry as well. And to do that, you can use the price to earnings ratio PE ratio. So as Ren said, Salesforce currently has a pay of 98 SAP, one of its competitors. Thirty six, Oracle 18, Microsoft 36, Adobe 63 and Ren. The software industry where Salesforce sits is trading at a pay of 29. So Salesforce, relative to all of that, looks very, very expensive. Whether or not that actually means anything, you can decide. But that is one way in which I [00:31:32][47.4]

Alec: [00:31:32] want you to tell me if [00:31:34][1.1]

Bryce: [00:31:35] that is one way you can look [00:31:36][1.2]

Bryce: [00:31:36] at valuing a company is relative valuation. But if you're going to do that, you also need to dig a little deeper and understand a bit more about each company, because looking at a price to earnings in itself, a little bit of a chat, Oreshkin. [00:31:47][10.4]

Alec: [00:31:47] Yeah, it's definitely shorthand. It is, I guess not confronting, but it does give you pause when it's trading at two and a half times higher pay than Microsoft. Yeah, one of the notable large trillion dollar companies that is often discussed is overvalued. But Microsoft price to earnings is sort of much more in line with the industry. And Salesforce feels a lot like an outlier out there. So the market has high expectations for it. So I'm interested to say you bring it home and tell me why those expectations are justified. [00:32:24][36.6]

Bryce: [00:32:25] Microsoft is a pretty boring company these days anyway, so [00:32:27][2.3]

Alec: [00:32:28] I love Microsoft, owned it for years now. And I've just got to say that Bill Gates and the team there, you can roll up five day and give me Covid because you developed a great company. [00:32:39][11.8]

Bryce: [00:32:40] Yeah. So the second [00:32:42][1.7]

Bryce: [00:32:42] way that you can look at valuing it is through the discounted cash flow model DCF. So let's just talk through that. I've given three models here for the DCF. I've given a bookcase, a fair case. [00:32:52][9.8]

Alec: [00:32:52] So for people unfamiliar with DCF, quick definition, [00:32:55][2.5]

Bryce: [00:32:55] discounted cash flow is essentially a model where you work out what are you willing to pay now for expected future cash flow of the company? There are a few little intricacies within that taking into consideration your discount rate. Which is a right that you could expect to get if you were to invest your money somewhere else, but other than that, yeah, yeah. [00:33:16][20.8]

Alec: [00:33:17] I mean, like in a nutshell, a dollar today is worth more than a dollar in a year from now. There's a time value of money. So basically you project future earnings or future cash flow and then you discount it back to what it's worth today. Yeah. And so that's what you've done. And you've given us, what, three different cases for Salesforce? Yes. [00:33:36][19.1]

Bryce: [00:33:36] So firstly, I've set my discount rate at eight percent. I know generally it's sort of around the 10 to 12. But I think in this climate, I think eight percent's pretty fair. [00:33:46][9.7]

Alec: [00:33:46] Why don't you just set the risk free rate the 10 year government bond, Steiglitz cheapest. [00:33:51][4.7]

Bryce: [00:33:52] So I set the discount [00:33:53][0.5]

Bryce: [00:33:53] rate at eight percent. The bull case is, I'm assuming that free cash flow over the next 10 years, 31 percent, which is their current five year compound, average growth, 10 year, 10 year. So that is going to give us a price of 342 Dollars, [00:34:10][16.2]

Alec: [00:34:10] which is better than the current share price. Exactly. [00:34:12][1.8]

Bryce: [00:34:12] So if you are very bullish on sales force and believe that they can continue their current free cash flow as it stands over the next 10 years, then, you know, you might be looking at a stock that is undervalued. Is that likely? Whoknows Ren fair case. I've put the free cash flow at twenty five percent, which is not unreasonable, and that comes out at a price of two twenty seven. So fairly in line with what it's trading at. Now, the bear case is if this thing sinks a little and they can't continue to generate the growth in the free cash flow that they have been dropped to around 18 percent. You're looking at a stock price today of 139, which is 80 per cent below what we're currently trading. [00:34:57][44.8]

Alec: [00:34:58] I just love the fact the bear case for this company is 18 percent annual growth for the next 10 years. [00:35:05][6.9]

Bryce: [00:35:05] Yeah, well, that is me, assuming that they can at least rise with the general tide of the industry, which they're expecting to be 14 percent. If they can just stay ahead of the game, then I mean, 18 percent. [00:35:19][13.4]

Bryce: [00:35:19] And that's the Big Bear case. [00:35:22][2.4]

Bryce: [00:35:23] Well, I mean, if it's less than that, then it's game over really. Like something significant is happening right [00:35:28][5.8]

Bryce: [00:35:30] now to getting Audrie's actually getting out. If you're looking [00:35:35][4.8]

Bryce: [00:35:35] at it from a bull perspective, 31 percent free cash flow, 342 is your dollar. But I'm going in at a fair price. So I think it's fairly priced. [00:35:42][6.8]

Alec: [00:35:43] OK. So you think it will continue to grow its free cash flow at twenty five percent a year for the next 10 years? [00:35:50][6.7]

Bryce: [00:35:50] Look, I'm not going to say yes or no to that because that's [00:35:53][2.7]

Bryce: [00:35:54] not what we're here for. [00:35:55][1.2]

Alec: [00:35:56] But is that not is that not all this episodes that [00:35:58][2.1]

Bryce: [00:35:59] I'm [00:35:59][0.0]

Bryce: [00:35:59] confident that at least for the next five years they can sit around that price? I mean, their 10 year is thirty one percent. So it's pretty phenomenal growth and the growth of the industry as we've spoken about the leader in a they're aggressive in what they're doing. I don't see why it's true on feasible for them to stay around that. Right. They have shot up in price over the last few days because of the Q2 earnings. But that is my only hesitation with this stock, is if we do put it in the portfolio right now, it feels like there's going to be a bit of a sell off on it, just as people take some profits and it's sort of realigns. But who knows what's going to happen then? Ren the other way you can look at it is from the reverse discount cash flow. And without going into it too much, it's essentially saying, what is the growth rate required for the current stock price? The growth rate required Ren is twenty six percent. So I mean, it's what it's doing. Yeah, it [00:36:54][55.5]

Bryce: [00:36:55] busted speechless reference for the [00:36:59][4.7]

Alec: [00:37:00] first time in two hundred and ninety episodes. I've got nothing to Bryce. So look, I think it's ambitious. [00:37:05][4.9]

Bryce: [00:37:07] The stock price [00:37:07][0.6]

Bryce: [00:37:08] or the growth [00:37:08][0.3]

Alec: [00:37:08] rate, the expectations built into the stock, I feel I mean things have to go very well because for me it's one the industry is growing at half the rate that you need. It's free cash flow to grow. So by definition, it means it needs to take market share off its competitors. And then when I think about who its competitors are, companies like Microsoft and stuff like that are incredibly well-run companies with incredibly good technological talent. But also, I think, you know, to that cross-selling conversation we're having before almost every organisation in the world has Microsoft embedded in its organisation through Microsoft Office. And so in the same way that Microsoft Haimes has been able to just dominate the growth rate of zoom in video conferencing, because Tames was a cross-selling opportunity for the Microsoft salespeople that was selling office products to big organisations, teams was an easy ad on it integrated into existing systems. And teams were just able to rocket up their growth rate and outpace zone, I would expect really anything that Microsoft develops gives the salespeople a very fair crack at selling it into any organisation on that whole cross-selling. We're already here. We're already integrated point. So for me, that does give me pause. But in the spirit of you always nail the stock picks on this [00:38:35][86.9]

Bryce: [00:38:35] show and no know you [00:38:36][0.9]

Alec: [00:38:36] have an uncanny knack of whatever you hit. Turning to gold. [00:38:40][3.9]

Bryce: [00:38:41] Not sure. Not sure. Well, let [00:38:43][2.1]

Bryce: [00:38:43] me just finish with a few concluding. [00:38:44][0.9]

Alec: [00:38:45] OK. OK, yeah. And then I'll give you money like you. [00:38:47][2.5]

Bryce: [00:38:48] My gut feel tells me that it's too hot right now. I think it's too hot. But then if we stick with the I guess the thesis and the whole ethos of this show, it's that if you're taking a longer term approach, are you really trying to time the market when you get in? I mean, that's when it sort of comes down to the intricacies of when to buy. Are you paying for something that is too expensive? But just some concluding thoughts generates a lot of revenue and great cash flow, which in a business we like to say it's in a growing industry, which is also great to see. It's very well positioned in that industry. And I think that in terms of its overall strategy, its positioning itself to take advantage of this rising tide. So from a macro sense, this business makes sense. I can see what they're doing. I can see that it's successful. People love using it. So from a product point of view, they've sort of got it down pat. Whether or not they can keep their competitors at bay and maintain that market share and growth rate is the big caveat to this whole thing. [00:39:51][62.8]

Alec: [00:39:51] I'm just looking at this chart and I'm looking at what it was trading at in March. So it was trading at one hundred and twenty four dollars in March. And that's meaningfully lower than your bear case like. Yeah, this was the kind of stock that we should have bought in March [00:40:05][13.4]

Bryce: [00:40:06] where we should have bought a lot of stocks, [00:40:07][1.3]

Bryce: [00:40:08] a couple, anything in March. [00:40:09][1.2]

Bryce: [00:40:10] But even if you look at what it was trading before at 200, I mean, if you'd probably plugged it into a DCF at that point in time, you would have probably come out thinking that it was reasonably valued. [00:40:22][12.1]

Alec: [00:40:22] Well, you would have. [00:40:23][0.5]

Bryce: [00:40:23] I would have, yeah. [00:40:24][0.6]

Bryce: [00:40:25] But even with its current growth [00:40:26][1.0]

Alec: [00:40:26] rate, I put in the industry growth rate and a 10 percent discount rate and the number that I got was lower. But look, I'm going to back you in. You know, this is a learning exercise. I'm not very confident in my first pick. By the way, I am kicking myself about my first pick. I was tossing up between two companies, Cleanaway and Magellan chose Magellan Magellan down a little bit since I pitched it, but it will be okay. Cleanaway shot up like a week after we released that episode. It released its earnings and it was up like and it's up 10 percent or something since then. Anyway, that's that's a complete story. [00:41:02][35.6]

Bryce: [00:41:02] So I'm going to [00:41:04][2.0]

Bryce: [00:41:04] back you in investing [00:41:05][0.5]

Bryce: [00:41:05] committee is saying yes, [00:41:06][0.8]

Alec: [00:41:07] although I am tempted to throw it over to the Facebook group. [00:41:10][3.1]

Bryce: [00:41:10] I think for the sake of the exercise, let's throw it to the [00:41:13][2.4]

Bryce: [00:41:13] Facebook group, OK? Yeah. All right. All right. [00:41:14][1.8]

Bryce: [00:41:15] Look, as I said, macro, it makes sense to me. I'd love to hear what our listeners think about the pricing of it. And perhaps there's some people out there who work for Salesforce or perhaps there's some people who have a bit more knowledge of this space in general. Would love to hear from you. Head over to our Facebook group. And you know what? Right after this episode, I'm going to put a poll and that should help us decide on whether or not this makes it past the investment committee and into our satellite portfolio. [00:41:43][27.8]

Alec: [00:41:43] So we'll say rules of the game are, what, 48 hours, 24 hours after we put the poll up, we close it and it's just no caveats or changes from there. Whatever the Facebook group decides is what we do in or out. [00:41:57][13.5]

Bryce: [00:41:57] Yes, I guess so. [00:41:58][0.9]

Bryce: [00:41:58] 48 hours, 48 hours. [00:42:00][1.4]

Alec: [00:42:00] So if you're listening to this, jump over to the Facebook group, Facebook dot com slash groups, slash Equity Mates. [00:42:06][5.8]

Bryce: [00:42:07] Why do you always laugh? That's the you are says Facebook's in euros. [00:42:11][4.8]

Alec: [00:42:13] Or if you type that into the URL, you get exactly where you may [00:42:16][3.4]

Bryce: [00:42:16] click on the group's button and you say that. [00:42:18][1.9]

Alec: [00:42:19] So Facebook dot com slash group slash Equity Mates. Join the group if you haven't already. If you are in the group Kiva, leave a comment. Tell us what you think and we will include it in the watch list or we will include it in the portfolio. It's definitely an interesting company. It's definitely one that I look. It's not going anywhere I like. The downside is in terms of risk, it's really a valuation risk more than anything else. It's not like you're pitching some, you know, turnaround that may not recover or some, you know, specky the downside risk is the business isn't viable. There's no doubt that this is a great business. But with so many great businesses, the valuation risk is there. And the more I learn about the stock market and market history, especially in the last two decades, the more I realise that valuation risk would have been the reason for so many people not. To buy so many good stocks like Amazon's always traded at a high pace, always. [00:43:12][53.4]

Bryce: [00:43:13] Yeah, it's just dumb. Never have bought [00:43:14][1.7]

Alec: [00:43:15] it. Yeah. So for me, you pay for quality. Do you pay this much for quality? The Facebook group will decide. [00:43:22][6.8]

Bryce: [00:43:22] The Facebook group will decide to decide. [00:43:25][2.5]

Bryce: [00:43:25] Nice Ren will. Glad I got that one out of the way. I was sweating bullets us coming at me hard and [00:43:32][6.7]

Bryce: [00:43:34] not all fun [00:43:35][0.4]

Bryce: [00:43:35] and games. But look, I think if anything, anyone's to take anything out of that. It's just look, there's many ways to research these sorts of things, many ways to value a company. And, you know, someone could be listening and could have done it a completely different way. And we'd love to hear from you if that is the case. So please keep your submissions coming in. We'll get you on the show. We've now got the tech worked out that we can give you guys a buzz quite easily and have a quick ten minute convo if that's what you want to do. So please hit us up at Contact@equitymates.com or through any of the social channels. We'd love to hear from you. [00:44:05][29.6]

Alec: [00:44:05] Oh, we've got a contact form on our website as well. So, yeah. And look, if you felt that some of this discussion was over your head, we've got a twelve part back to basics. Everything you need to know to get started series imaginatively called Get Started Investing feed. So give that a listen. And yeah, hopefully this conversation was useful and we will keep doing this. And a trend that I am watching now is going to be a where are you going to get more assertive with each [00:44:34][29.0]

Bryce: [00:44:34] other and start ripping each other's ideas a little bit? Oh, we can't we can't do that. We always pay for this. Yeah. So a loving game. So that's it. [00:44:43][8.6]

Alec: [00:44:43] It's all a learning experience. We're learning alongside everyone and I'm loving it. I'm loving getting into the individual stock. [00:44:48][5.4]

Bryce: [00:44:49] Yeah, it's good fun. Nice Ren. We'll leave it there. As always, looking forward to trading stocks next week. [00:44:53][4.1]

Alec: [00:44:53] Sounds good. [00:44:53][0.3]

Speaker 4: [00:44:54] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything you hear in Equity Mates investment podcast with general advice on the content has been prepared, not knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment podcast May nineteen positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:44:54][0.0]

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