Salesforce.com Is Macquarie's Overall Top Pick In Enterprise Software

Macquarie’s Sarah Hindlian expects salesforce.com, inc. (NYSE: CRM) to witness a robust FY16, with the launch of its new user interface, ongoing margin expansion and price increases.

Hindlian maintains an Outperform rating on the company, with a price target of $92.

Price Hikes

Naming salesforce.com as Macquarie’s top pick, Hindlian mentioned that the new "lightning user interface" was expected to offer users more compelling and powerful features, allowing the company to increases prices for its core Sales and Services products by 11–25 percent in 1HFY17.

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“These price increases could provide a long-term tailwind to the company’s revenues due to the compounding nature of the subscription business model, which likely also offsets incremental near-term customer churn,” Hindlian explained.

Margin Expansion

The analyst also pointed out that salesforce.com has been consistently improving its margins, while generating SaaS industry leading free cash flow.

Free cash flows were expected to “improve at maturity as the company’s renewal business increases as a proportion of total business,” according to the Macquarie report.

Growth

Near-term growth was likely to be driven by marketing cloud uptake, following updates in late FY16, as well as the continued adoption of Service Cloud, which is turn has been driven by demand for omnichannel, 24x7 customer service and the transition from B2B to B2C call centers.

Hindlian expects the company to see sustainable long-term growth too, as salesforce.com expands into the international markets, and cross-sells and up-sells to existing customers.