In this article, I have compared two software stocks, Coinbase Global, Inc. (COIN) and Salesforce, Inc. (CRM), in order to identify the more promising investment opportunity. After evaluating various fundamental aspects of these stocks, I have concluded that CRM is the superior choice for investment. The rationale behind this conclusion has been detailed and discussed extensively throughout the article.
The software market is poised for growth, with revenue expected to reach an impressive $659.00 billion this year. Moreover, the revenue in the software sector is anticipated to exhibit a steady CAGR of 5.4% from 2023 to 2028, leading to a market volume of $858.10 billion by 2028.
In terms of global comparison, the United States is expected to play a significant role, generating the highest revenue in the software market, amounting to $338.20 billion this year.
In addition, the emergence of artificial intelligence (AI) has revolutionized numerous industries worldwide, reshaping the landscape in remarkable ways. With its advanced computational capabilities, AI has brought about transformative changes and opened up new possibilities across various sectors.
Furthermore, the AI software market is poised for extraordinary expansion, driven by the rising demand for software-driven solutions and services and the accelerated adoption of AI tools and solutions. Predictions indicate that by 2032, this market will reach $1.09 trillion, exhibiting an impressive CAGR of 23%.
CRM has gained 15.1% over the past year, while COIN declined 16.4%. Also, CRM’s 64.2% gains over the past six months is significantly higher than COIN’s 32.4% returns. Moreover, CRM has returned 7% over the past month, while COIN has declined 11.5%. CRM is the clear winner.
Latest Developments
Recently, the U.S. Securities and Exchange Commission (SEC) had initiated lawsuits against major cryptocurrency exchanges, Binance and COIN. These legal actions have intensified the existing tensions between the government and the volatile cryptocurrency industry, which has faced scandals and market instability.
The allegations against Binance and COIN revolve around their supposed violation of securities exchange laws by operating without proper registration with the SEC.
On the other hand, on June 7, 2023, CRM launched two new generative AI products: Marketing GPT and Commerce GPT. These offerings aim to enhance marketers' capabilities by automating tasks such as personalized email generation, smarter audience segmentation, and marketing journeys.
Additionally, Commerce GPT enables brands to provide personalized shopping experiences and tailored offers that adapt to customers' needs through dynamic buying journeys powered by GPT technology.
On the same day, CRM and Google Cloud strengthened their strategic partnership to support businesses in leveraging data and AI for delivering personalized customer experiences, gaining insights into customer behavior, and conducting more effective campaigns across marketing, sales, service, and commerce.
The collaboration introduces two new data and AI innovations. The first innovation enables real-time data sharing, facilitating enhanced predictive and generative AI capabilities.
In addition, on June 1st, CRM announced that JPMorgan Chase & Co. (JPM) unveiled its new Payments Partner Network, a marketplace powered by CRM’s Commerce Cloud.
Supported by Salesforce technology, J.P. Morgan’s new digital marketplace will surface an ecosystem of third-party payment integrations for merchants and corporate treasury clients.
Recent Financial Results
During the fiscal first quarter that ended April 30, 2023, CRM’s total revenues increased 11.3% year-over-year to $8.25 billion. The company’s non-GAAP income from operations increased 73.9% over the prior-year quarter to $2.27 billion. Its non-GAAP net income increased 70.5% year-over-year to $1.67 billion and non-GAAP net EPS grew 72.4% year-over-year to $1.69.
Conversely, COIN’s net revenue declined 33.8% year-over-year to $772.53 million in the fiscal first quarter that ended March 31, 2023. Its operating loss stood at $123.88 million. The company reported a net loss of $78.90 million or $0.34 per share.
Past and Expected Financial Performance
COIN’s revenue grew at a CAGR of 67.8% over the past three years. Analysts expect COIN’s EPS to increase by 9.5% in the current quarter, 66.3% in the next quarter, and 65.4% in the current year. The company’s revenue is expected to decline 17% in the current quarter but is expected to rise 20.7% in the next quarter and fall 10.9% in the current year.
On the other hand, CRM’s revenue grew at a CAGR of 20.9% over the past three years. Analysts expect the company’s revenue to increase by 10.5% in the current quarter, 10.6% in the next quarter, and 10.5% in the current year. The company’s EPS is expected to grow 58.5% in the current quarter, 31.4% in the next quarter, and 41.9% in the current year.
Profitability
CRM is more profitable, as its trailing-12-month EBIT and EBITDA margins of 9.20% and 20.63% compare to COIN’s negative 62.41% and 56.39%, respectively.
Furthermore, CRM’s trailing-12-month ROCE, ROTA, and ROTC of 0.65%, 2.56%, and 0.41% compare with COIN’s negative 37.37%, 10.68%, and 1.63%, respectively.
Valuation
In terms of forward EV/EBITDA, COIN is currently trading at 24.11x, higher than CRM, which is currently trading at 18.84x. However, COIN’s forward P/S ratio of 4.39 is slightly lower than CRM’s 6.05.
POWR Ratings
CRM has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. COIN, on the other hand, has an overall rating of D, which translates to a Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRM has a grade of B for Sentiment, in sync with favorable analyst expectations. CRM, on the other hand, has a grade of C for Sentiment, consistent with the mixed estimates.
Moreover, CRM has a B grade for Quality. Its trailing-12-month EBIT and EBITDA margins of 9.20% and 20.63% are 113.5% and 150% higher than the industry averages of 4.31% and 8.25%.
However, COIN has a grade of D for Quality. Its trailing-12-month negative EBIT and EBITDA margins of 62.41% and 56.39% are lower than the industry averages of 20.44% and 20.63%.
Among the 135 stocks in the Software - Application industry, COIN is ranked #126, while CRM is ranked #8.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Growth. Click here to access CRM ratings. Get all COIN ratings here.
The WinnerDespite the prevailing macroeconomic uncertainties, the software industry has exhibited remarkable resilience, fueled by heightened investment and a steadfast commitment to innovation. In particular, the sector has witnessed an extraordinary surge in advancements related to generative AI, propelling the industry to even greater heights.
However, while CRM reported strong fiscal first-quarter results, with increased revenues and net income, COIN's net revenue declined, and the company reported an operating loss and net loss in its first quarter.
Moreover, while CRM has been making headlines with its new launches and partnerships, COIN was sued by the SEC for allegedly ignoring the requirements to register with the SEC.
Therefore, I think CRM is a better buy this month.
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.
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CRM shares were trading at $218.66 per share on Monday morning, up $3.35 (+1.56%). Year-to-date, CRM has gained 64.91%, versus a 12.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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