Hi YXI friends,

Today, we are going to do a deep dive on Salesforce (CRM), an ageing Juggernaut trying to reposition itself as the next AI company.

The key to Salesforce’s AI story lies within Agentforce, the AI Agent that is supposedly smart enough to replace most customer-facing employees. But the selling point is not for AI to steal everyone’s jobs, but to help employees free up their time and handle volumes of real customer queries with ease. Humans and AI work in harmony as it were.

As usual, we examine the narrative, the fundamentals, valuation, as well as the chart technicals to pick out the next trade idea. We may actually get a long-term trade setup in CRM here, so please do check out the technical analysis.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. A New Growth Story: Salesforce To Be Renamed Agentforce

Ok they are not actually going to do that, but they might as well.

Salesforce’s AI Agent Network, Agentforce, is at the front and centre of the company’s future growth.

Agentforce’s AI Agent not only can chat with customers or sales prospects like traditional, pre-programmed chatbots, but also complete complex tasks and queries through integration with third-party systems (e.g. Google Workspace, Zoom, Docusign) and access to internal databases. This makes the AI Agent more autonomous and accurate than competitors’ co-pilots or generic AI bots.

Each company can create tailored AI Agents with minimal coding that carry out context specific actions. They drastically reduce the need for human intervention in completing difficult tasks. By delegating the repetitive, time-consuming tasks to AI Agents, companies theoretically should be able to free up employee time as well as their headcount.

Successful industry-specific examples include a healthcare customer with 20 million consumers in the US resolving more than 90% of all patient inquiries with Agentforce during pilot.

In terms of pricing, Salesforce employs a consumption model for Agentforce, around $2 per conversation. It sounds and is a high-margin price point, but Salesforce would argue it is reasonable compared with the cost saving and value creation of the AI product instead of using humans.

While this all sounds nice and fancy, the Agentforce Platform is generally available only from October. Therefore, its success is far from certain and therefore not baked into the share price yet. But this also provides us with an opportunity of entry, as I will show in the final section.

2. A Breakdown of Salesforce’s Businesses

Salesforce’s revenue is grouped under two umbrellas: Subscription and Support (94%) and Professional Services and Other (6%).

For the purpose of the analysis, we will focus on Subscription and Support (S&S). Within S&S, we have 5 business segments in Sales, Service, Platform and Other (including Slack), Marketing and Commerce, and Integration and Analytics (including MuleSoft & Tableau).

In terms of global footprints, most of Salesforce’s revenue comes from Americas, although Asia is fastest growing.

3. If You Can’t Grow, Cut Costs.

Subscribe to YX Premium to read the rest.