As digital transformation initiatives spread across various industries, the demand for bespoke software solutions tailored to specific business needs is growing. Application development tools enable organizations to design, customize, and deploy applications more quickly and efficiently, thereby facilitating their adoption.
Therefore, the application development software market is projected to grow at a CAGR of 14.7% by 2030.
Moreover, cloud services are extensively utilized worldwide because they eliminate the need for manual software updates and allow clients to easily access data remotely. These services enable businesses to operate more efficiently and conserve energy by using only the necessary resources. The business software market is expected to grow at a CAGR of 11.2% by 2029.
Against this backdrop, let’s compare two cloud stocks, Salesforce, Inc. (CRM) and ServiceNow, Inc. (NOW), to analyze which cloud stock is superior.
The Case for Salesforce, Inc.
Valued at $243.34 billion by market cap, Salesforce, Inc. (CRM) provides Customer Relationship Management technology that brings companies and customers together worldwide. The company's service includes sales to store data, monitoring leads and progress, forecasting opportunities, contracts, and invoices, and providing service that enables companies to deliver trusted and highly personalized customer support at scale.
CRM’s stock has gained 21.4% over the past nine months to close the last trading session at $251.12. Over the past month, the stock has surged 3.8%.
CRM’s trailing-12-month gross profit margin of 76% is 54.8% higher than the industry average of 49.09%. Further, its trailing-12-month EBIT margin of 18.45% is 269% higher than the industry average of 5%.
For the fiscal first quarter that ended April 30, 2024, CRM’s total revenues increased 10.7% year-over-year to $9.13 billion. Its free cash flow rose 43.2% from the year-ago quarter to $6.08 billion. For the same quarter, its non-GAAP net income stood at $2.41 billion and $2.44 per share, up 43.8% and 44.4% from the prior-year quarter, respectively.
For the fiscal first quarter that ended April 30, 2024, CRM’s total revenues increased 10.7% year-over-year to $9.13 billion. Its free cash flow rose 43.2% from the year-ago quarter to $6.08 billion. For the same quarter, its non-GAAP net income stood at $2.41 billion and $2.44 per share, up 43.8% and 44.4% from the prior-year quarter, respectively.
CRM’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CRM has a B grade for Sentiment and Quality. It is ranked #22 out of 135 stocks in the Software - Application industry.
Click here for the additional POWR Ratings for CRM (Value, Growth, Stability, and Momentum).
The Case for ServiceNow, Inc.
Valued at $153.86 billion by market cap, ServiceNow, Inc. (NOW) provides end-to-end intelligent workflow automation platform solutions for digital businesses in North America, Europe, the Middle East and Africa, Asia Pacific, and internationally.
NOW’s stock has plunged 2.9% over the past three months and 34.1% over the past nine months to close the last trading session at $749.14.
On May 9, 2024, NOW unveiled new AI-powered capabilities to help improve employee experiences, supercharge talent development, and optimize in-person work. Enhancements to ServiceNow’s Talent Development solution, formerly named Employee Growth and Development, infuse AI into the learning experience to understand skills, support internal mobility, and enhance mentoring.
NOW’s trailing-12-month EBIT and EBITDA margins of 10.02% and 15.99% are 100.5% and 62% higher than the industry averages of 5% and 9.87%, respectively. However, the stock’s trailing-12-month asset turnover ratio of 0.61x is marginally lower than the industry average of 0.61x.
NOW’s total revenues increased 24.2% year-over-year to $2.60 billion during the first quarter that ended March 31, 2024. Its gross profit rose 25.6% year-over-year to $2.08 billion. The company’s net income grew 131.3% and 128.8% from the year-ago value to $347 million and $1.67, respectively.
Analysts expect NOW’s revenue for the second quarter (ended June 2024) to increase 21.4% year-over-year to $2.61 billion. Moreover, the company’s EPS for the same quarter is expected to grow 20% year-over-year to $2.84. NOW surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
NOW’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Growth, Momentum, Stability, and Sentiment. NOW is ranked #25 out of 41 stocks in the B-rated Software - Business industry.
In addition to the POWR Ratings I’ve just highlighted, you can see NOW’s ratings for Value and Quality here.
Salesforce vs. ServiceNow: Which Cloud Stock is Superior?
Cloud computing has completely changed the software business, driving growth by providing scalable and affordable infrastructure. Both enterprises and individuals now require software solutions for remote project management, video conferencing, and virtual collaboration, thereby driving demand for cloud-based software. Both CRM and NOW stand to capitalize on these burgeoning industry trends.
However, CRM’s higher profitability and strong financials favor it as the better cloud stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Application industry here and the Software - Business industry here.
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CRM shares were trading at $254.48 per share on Friday afternoon, up $3.36 (+1.34%). Year-to-date, CRM has declined -3.01%, versus a 19.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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