Oracle and Salesforce Stock Battle
Due to its improved valuation, we think that *Salesforce's shares (NYSE: CRM) are currently a superior selection compared to its counterpart, Oracle's shares. CRM shares trade at a multiple of 9.5x trailing revenues, while ORCL trades at 9.8x*. Although Oracle is more financially profitable, Salesforce has displayed superior revenue growth and has lower financial risk. In the subsequent sections, we explain why we expect CRM to outperform ORCL over the next three years. We examine various factors such as historical revenue growth, returns, and valuation.
ORCL shares have outperformed CRM shares in the last three years
ORCL shares have seen significant gains of approximately 225% from a price of $60 in early January 2021 to around $195 currently, whereas CRM shares have gained about 65% from $220 to $360. This contrasts with approximately 60% gains for the S&P 500 during this period. Remarkably, ORCL shares have outperformed the broader market in each of the last four years. ORCL's returns were 37% in 2021, -5% in 2022, 31% in 2023, and 85% so far in 2024. CRM shares, however, have been less consistent, posting returns of 14% in 2021, -48% in 2022, 98% in 2023, and 38% in 2024 – indicating that CRM underperformed the S&P 500 in 2021 and 2022. For another strong-performing stock this year, see The Reason Behind Meta's 80% Stock Surge.
It should be noted that consistently outperforming the S&P 500 in both good and challenging economic conditions has been difficult for individual stocks, even for prominent IT sector companies such as META, COMM, and AAPL, as well as for megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High-Quality Portfolio, comprising 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? The HQ Portfolio stocks provided better returns with lower risk than the benchmark index, offering a smoother ride, as demonstrated in HQ Portfolio performance metrics.
Salesforce's revenue growth is stronger than Oracle's
Salesforce has seen its revenue increase at an average annual rate of 18.1% from $21.3 billion in 2021 to $34.9 billion in 2024 (fiscal years end in January). Meanwhile, Oracle's average revenue growth rate of 9.5% from $40.5 billion in 2021 to $53 billion in 2024 (fiscal years end in May) has been relatively slower.
Recently, Salesforce's revenue growth has been driven by an increase in subscription and support sales, fueled by increased demand for its cloud-based offerings, such as Sales Cloud, Service Cloud, and Marketing Cloud. Salesforce aims to grow its revenues by leveraging the technological revolution, which includes the demand for artificial intelligence (AI) and machine learning (ML). Its AI system – Agentforce – is benefiting the company, and it is continually introducing AI capabilities across its offerings, leading to increased adoption.
Oracle's revenue growth is also being driven by increased consumption of its cloud offerings. Oracle has seen success with generative AI workloads and expects its revenue to double in five years, as more on-site database customers transition to the cloud. For additional insights, see Consider Selling LULU Stock, Buying eBay?
Looking ahead, both Salesforce and Oracle are expected to benefit from the growing demand for cloud and AI. Oracle is investing in AI infrastructure and has partnered with key players such as AWS, Microsoft, and Google. We anticipate both companies to see their sales rise at a low double-digit average annual growth rate over the next three years.
But, Oracle is more profitable
In terms of profitability, Oracle's adjusted net income margin has decreased from 34.9% in 2021 to 29.7% in 2024, whereas Salesforce's has increased from 21.6% to 23.2% over this period. Notably, Oracle's 30.3% adjusted net income margin for the last 12 months surpasses Salesforce's 25.5%.
What about financial risk?
From a financial risk perspective, Salesforce has an advantage over Oracle. Its debt as a percentage of equity is significantly lower at 3% compared to 16% for Oracle, while its cash as a percentage of assets is higher at 14% versus 8% for the latter. This indicates that Salesforce has a stronger financial position and a larger cash cushion.
Conclusion – CRM wins the battle
We notice that Salesforce has delivered superior revenue growth and has lower financial risk. While Oracle is more profitable, we are optimistic about Salesforce's prospects. At its current price of $360, CRM shares trade at 37x its trailing adjusted earnings per share of $9.70, compared to its average P/E ratio of 43x over the last four years. Conversely, ORCL shares are priced at 32x their trailing adjusted earnings per share of $5.77, with an average P/E ratio of 22x over the last four years.
It seems that an enhancement in the assessment multiple for both shares is due, considering the escalating demand for AI-driven cloud services. ORCL shares, currently trading at a multiple far surpassing its typical historical level, while CRM shares are currently priced lower than their average historical multiple, appears illogical to us. We presume this disparity will decrease, favoring CRM. Although both stocks could yield significant returns over the long term, if forced to choose, we believe CRM is the optimal selection.
Assessing CRM's potential dominance over ORCL in the next three years, it's beneficial to examine the performance of *Salesforce's Competitors in key relevant areas. You'll discover additional comparisons for various sectors at Competitor Comparisons*.
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- Despite Oracle's wider profitability, Salesforce's AI-driven cloud offerings, such as Sales Cloud, Service Cloud, and Marketing Cloud, have led to stronger revenue growth with an average annual rate of 18.1%, compared to Oracle's 9.5%.
- The valuation of Oracle's stock (ORCL) is currently higher than its historical average, trading at 32x its trailing adjusted earnings per share, whereas Salesforce's stock (CRM) is priced lower, at 37x its trailing adjusted earnings per share.
- Oracle's reliance on debt is higher than Salesforce's, with debt as a percentage of equity being 16%, compared to Salesforce's 3%. Salesforce also has a higher cash cushion, with cash as a percentage of assets at 14%, compared to Oracle's 8%.
- The AI system Agentforce and strategic partnerships with AWS, Microsoft, and Google are expected to bolster Salesforce's position in the growing cloud and AI market, continuing its strong revenue growth.
- Although Oracle is investing in AI infrastructure, the gap in profitability and financial risk between the two companies suggests that Salesforce's stock (CRM) may outperform Oracle's stock (ORCL) in the upcoming years, making it a potentially superior investment choice.
