Salesforce (CRM) on Tuesday took another step to deliver profitable growth — a welcome development for investors, like us, which sent its stock price higher. The enterprise software giant said it’s raising list prices for several top-selling products by an average of 9%. The price hikes will impact its Sales, Service and Marketing clouds, as well as data analytics offering Tableau, and Industries, which provides industry-specific digital applications. The changes go into effect next month for new customers and existing clients that purchase new product clouds starting in August, according to a press release. Investors appeared upbeat around the list price increases, which Salesforce said are the first in seven years. Shares of Salesforce jumped more than 3% on Tuesday to about $220 each, significantly outperforming the tech-heavy Nasdaq , which rose modestly. Tuesday’s gains have Salesforce on track for its highest close since releasing first-quarter earnings in late May . After closing at $223.38 per share on May 31, the stock had fallen nearly 5% through Monday — stalling out after its hot first five months of 2023. Including Tuesday’s move, Salesforce shares are up around 65% year to date, making it the fifth best-performing Club holding behind Nvidia (NVDA), Meta Platforms (META), Palo Alto Networks (PANW) and Advanced Micro Devices (AMD). CRM YTD mountain Salesforce YTD performance Salesforce’s product price increases should moderately boost both its topline revenue and margins, without sacrificing the company’s competitive position because many other software companies are taking similar actions, Needham analyst Scott Berg told CNBC. “I don’t expect it to impact churn much,” said Berg, who has a buy rating and $230-per-share price target on Salesforce stock. The financial impact is most likely to show up in Salesforce’s results next fiscal year, starting this coming February, the analyst said. The company is currently in its fiscal 2024 second quarter. Prior to Tuesday’s announcement, Needham expected Salesforce in fiscal 2025 to generate $2.5 billion in net new revenue for the four business segments impacted by the price hikes. That projection could rise to roughly $2.7 billion as a result of the changes, Berg said. “There will [also] be an incremental benefit to operating margins and profitability.” It’s worth noting, large customers will usually negotiate with Salesforce to secure a discount to a product’s list price. Still, a higher list price can translate to higher revenue for Salesforce assuming the size of the discounts to new customers aren’t different. Here’s a simple example to illustrate. Salesforce will soon charge $330 for an “Unlimited Edition” license for its Service Cloud, up from $300 previously. A new customer, in our hypothetical scenario, who buys 100 licenses at a 20% discount to the updated list price will generate $26,400 in revenue for Salesforce. Previously, a customer who bought 100 licenses at a 20% discount to the old list price would’ve generated $24,000. In a note to clients Tuesday, Mizuho Securities said that Salesforce raising list prices is hardly surprising, but the magnitude was “better than anticipated.” The analysts reiterated their buy rating on Salesforce and slightly raised their price target to $250 from $240. “More broadly, we believe CRM remains well situated to help its vast customer base manage revenue and process optimization via digital transformation,” Mizuho wrote. “We continue to believe CRM’s outlook signals a new chapter dictated by profitable growth above all else.” Bottom line Indeed, Tuesday’s news underscores co-founder and CEO Marc Benioff’s commitment to growing profits at Salesforce. In fending off intense activist pressure earlier this year, Benioff told investors that profitability is the company’s top priority . He’s delivered on that mission over the past two quarters , and raising list prices on key products for the first time in seven years will help, too. Our belief has long been that Salesforce’s products are integral to doing business in the digital age. As a result, we expect little pushback from customers on this move. (Jim Cramer’s Charitable Trust is long CRM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Marc Benioff, chairman and chief executive officer of Salesforce.com speaks during the grand opening ceremonies for the Salesforce Tower in San Francisco on May 22, 2018.
David Paul Morris | Bloomberg | Getty Images
Salesforce (CRM) on Tuesday took another step to deliver profitable growth — a welcome development for investors, like us, which sent its stock price higher.
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