THE SAAS-POCALYPSE AND SALESFORCE

Salesforce (NASDAQ: “CRM“), the world’s leading cloud client relationship management and enterprise software company, has seen its share price pummeled since it hit a record high of $367.87 on December 4, 2024. Had you held the shares through the recent low on June 23 when the shares were priced at $153.42, you would have experienced a loss of over 58%. The culprit? The Software as a Service Apocalypse, better known as the “SaaS-pocalypse,” which sees AI as an emerging threat to subscription the moats of software companies. Since then, shares have ticked up around 8% to a still depressed $165.83 as of July 8.

The same forces behind the boom in AI and hardware shares are precisely those opposed to SaaS companies.

As of July 8, CRM was trading at a near record low trailing free cash flow multiple approximating 10.5X according to YCharts. My personal computation is a slightly higher 11.2X. Given company revenue and operating profit margin guidance, I estimate that free cash flow per share is likely to increase in the area of 14% for FY 2027 (the company has a January 31 year-end). That makes the forward cash flow multiple about a turn and a half juicier at 9.6X.

Following the company’s solid first quarter earnings release on May 27, share values spiked 9%, aided by a “shout out” from Jim Cramer and continued sell side analyst buy recommendations. However, the shares continued to be under pressure and have fallen 17% since then as of July 8. During the first quarter, the company announced a $72 million US Airforce contract, reaffirmed revenue guidance in the area of 11% and demonstrated its predicted operating margin improvement (36.8% in FY 2026 vs. 37.1% for Q1 2027). But the real meat in the quarter came in the form of a 10.25% net decline in outstanding shares. Salesforce had been aggressively buying in shares since 2024 but took the unusual step to borrow $24.8 billion to buy in 114 million shares of its stock for $27.2 billion. The company has been vocal about the notion of its shares being undervalued and put its money where its mouth is.

So, here’s the question. With Salesforce’s stock price under pressure as a result of AI-related fears that its franchise is about to erode, should you consider buying some shares?

By the Numbers

Key metrics at a glance (as of May 30, 2026):

• Share price decline from Dec 2024 peak: ~58%

• Trailing FCF multiple: ~11.16X | Forward FCF multiple: ~9.6X

• Q1 FY2027 net share count reduction: 10.25%

• Debt raised for buybacks: $24.8 billion

• Equity market cap: $135.7 billion

• Expected FY2027 FCF per share growth: ~14%

• Base-case annualized return (no multiple change): ~14%

THE VALUE EQUATION APPROACH

This is the second article of a series that will harness the Value Equation framework to dissect company business models – in this case Salesforce – and use the construct to model estimated return ranges for investors. The thesis is a simple one. Business models are subject to change but tend to have far less volatility than share prices. That simple observation is value investor elixir, and the Value Equation is a useful business model dynamics tool to peel back the numbers.

If you are looking to understand the specifics of the Value Equation, I encourage you to read “Panning for Gold,” which I recently posted on Seeking Alpha. Or you can go to www.christophervolk.com or my YouTube channel and spend some time bingeing on my recent video series (there will ultimately be 27 short videos, 19 of which are now up). Or you can buy my Value Equation book.

The Value Equation is a financial tool that computes current equity returns and forms the center of an integrated universal business model. I devised the equation in 1999 and later used it in my leadership of three outperforming NYSE listed companies, two of which I started.

The equation long-form is below but becomes more potent in a shorter form where numbers are replaced by relationships. Hence, Sales/Business Investment is a ratio. Operating Profit/Sales is operating profit margin and so on.

SALESFORCE’S Q1 2027 VALUE EQUATION VARIABLES

Delivering a universal business model for Salesforce begins with the Value Equation and adds growth variables, together with variables for cash flow cycle balance sheet items and share count changes. To be fully transparent and keep the main body of this article short, the variable computations are included for geeks like me in an appendix for your reference.

For maintenance CapEx, the number I have elected to use is zero, which is because the Salesforce modest capital expenditures on average equal the company’s reported gains on strategic investments. Zero does not imply Salesforce has no maintenance CapEx; rather, the company’s reported capital expenditures and unrealized gains on strategic investments offset each other in a way that makes net maintenance CapEx effectively neutral for Value Equation purposes. Moreover, the capital expenses are not significant. What is significant is the company’s acquisition of strategic software companies that it has incorporated into its CRM software offerings. Finally, Salesforce spends about 15% of revenues annually on research and development, which it fully expenses. Such investments to maintain the quality of its offerings are what maintenance CapEx is all about.

SALESFORCE’S GROWTH AND RETURN VARIABLES

Over prior years, Salesforce has devoted much of its cash flow to corporate acquisition activity. In FY 2026 the main acquisition event was its $8 billion Informatica acquisition. Informatica is one of the world’s leading Extract, Transform, Load (ETL) and data-integration platforms and was acquired to strengthen Data Cloud, MuleSoft, and Agentforce with enterprise-grade data ingestion, governance, and metadata intelligence.

Informatica joined a list of prior complementary corporate acquisitions, including Slack (Purchased in 2021 for $27.7 Billion), Tableau (purchased in 2019 for $15.7 Billion) and MuleSoft (Purchased in 2018 for $6.5 Billion). Altogether, the company has made over 70 acquisitions to strengthen its product line and moat. From a business model perspective, the investments have served to effectively make the company more asset heavy, with intangible assets and goodwill comprising close to 70% of the company’s calculated Business Investment.

Absent resultant incremental revenues, being more asset heavy poses a risk of business model degradation. Consider, for instance, that bricks-and-mortar/asset heavy Walmart has a Sales:Business Investment Ratio exceeding 2X, versus the .47X at Salesforce. In addition, there is a risk of investment losses from investments that fail to fulfill their promise, which the Value Equation approach incorporates into maintenance CapEx. All this said, Salesforce’s operating profit margin provides a superior overall business model to Walmart which is reflected in its Value Equation results.

For the purposes of the model, I assumed an incremental Sales:Business Investment ratio of zero from corporate acquisitions because Informatica and others are incorporated into Salesforce’s existing offerings and because the company announced and affirmed an ~11% aggregate revenue growth target for 2027. Assuming an incremental Sales:Business Investment for the Informatica of other corporate acquisitions would have elevated expected sales beyond the company’s guidance. More than that, the company’s aggressive Q1 2027 debt-funded share repurchases suggest that near-term corporate acquisition activity is likely to be light.

SALESFORCE’S CASH FLOW CYCLE VARIABLES

Salesforce benefits from favorable cash flow cycle dynamics, being paid in advance for software subscriptions. Moreover, the company does not carry inventory. So, with more free money (trade payables, accruals, deposits and deferred income taxes) than cash flow cycle assets (accounts receivable and prepaid expenses), sales growth enables Salesforce to throw off more cash than the Value Equation would estimate. That said, favorable cash flow cycles work against businesses when sales are declining, where cash flows will be lower than what would otherwise be determined through the Value Equation. Here’s how the cash cycle adjustment works:

Given net cash flow cycle liabilities represent 9.33% of Business Investment, an ~11% revenue increase in 2027 would have the impact of adding 2.43% to the company’s annual current creation equity yield.

SALESFORCE’S SHARE COUNT VARIABLES

During its 2026 fiscal year, Salesforce acquired almost $13 billion of its own shares, representing almost 5% of its beginning share count. Netting that purchase against 17 million in employee share grants and the share count fell by 3.13%, adding that amount to per share cash flow growth.

But Q1 2027 is when the real action took place. During the quarter, the company took in a net 9.13% of outstanding shares, principally funded through borrowings (the share grants were annualized). A 9% net reduction in a single quarter is almost unheard of among mega-cap software companies; it is equivalent to better than two full years of repurchases at once. The incremental leverage to accomplish this materially altered the company’s capital stack, which had been funded 32.8% with borrowings and leases. At the end of the first quarter, that mix of debt and lease proceeds shifted to 58.6%, with the share count contribution to FY2027 cash flow per share estimated as follows:

THE FINANCIAL MODEL OUTPUT

Given Salesforce’s business model variables, the company generates a stout current cash flow cycle adjusted equity creation yield of 30.51% (for FY 2026 at its lower leverage, the creation yield was 19.49%), which equates to an investment cash flow multiple of 3.16X. At the same time, as of July 8, 2026, the company’s equity was valued at $135.7 Billion, equating to an 11.16X cash flow multiple. That market multiple is all you need to transform the Value Equation from a cost basis computation to an enterprise model to estimate 2027 investor returns.

The delta between Salesforce’s investment creation cash flow multiple of 3.16X and its 11.16X market multiple means that the company’s Equity Valuation Multiplier (EVM) amounted to 3.4X, which is the amount equity is worth more than its creation cost. EVM’s above 1 happen when a company has been a good custodian of shareholder equity, delivering returns that exceed its cost of equity.

All the best companies have equity valued above creation cost. In the case of Salesforce, its equity creation cost amounts to an estimated $39.6 billion at the end of its FY 2027 first quarter at April 30, 2026. That value includes the company’s early equitization, 2004 $110 million IPO, cumulative retained cash flows and equity share grants less dividends paid and over $50 billion in share repurchases. Meanwhile, the company’s market value was 3.16X greater at $135.7 billion.

A current market cash flow multiple of 11.16X means a trailing equity yield of 8.96% for current Salesforce shareholders. Multiply that yield by the Q1 annualized dividend payout ratio of 12.08%, and the current dividend yield becomes 1.08%. To estimate anticipated returns for 2027 before the impact of share repurchases, you just add that to the approximately 13% expected rate of cash flow growth per share, which the model produces.

Expected sales growth of ~11%, given a stable margin and OPM mix arrives at cash flow per share growth of about 13%. (Again, note that no cash flow growth is shown from reinvested cash because Salesforce’s revenue growth is inclusive of reinvested cash flow into corporate acquisitions.) Add that growth rate to the dividend yield and Salesforce delivers an expected annualized rate of return of 14.07% for the 2027 fiscal year. Add in the ~9% net change in shares shown in Q1 and the implied return for the year would be better than 23%, assuming no multiple change. For those buying in today, post the large share buybacks, remaining fiscal year 2027 buybacks are likely to be light, suggesting closer to an annualized 14% rate of return – again assuming no multiple changes.

Of course, stock multiples do change, which has been the driver of Salesforce’s 18-month dramatic SaaS-pocalypse-driven underperformance. This one missing return element from the five sources of return looms as the big question.

There is a range of possible investment outcomes, and the Value Equation Universal Business Model can help lay those out.

Assuming no multiple change over a one-year holding period from July 8 and no additional share repurchases, the annualized return is 14.1%, with the shares about 13% higher, rising from $166 to an ending price of $187.40. But a reversion rise in cash flow multiple turn to a still low 15X will elevate the return to almost 49% and a price of $244.50. Meanwhile a drop in multiple to 9.65X gets to about breakeven with no change in share price. My expectation is for the multiple decline to cease and begin to revert. Salesforce’s average cash flow multiple has been well north of 20X historically. However, the shares don’t need to get close to this number to be interesting.

In my view, business models rule over the long term. And Salesforce quantitatively and unquestionably has a compelling business model. Which means that, while jumping in to buy shares today poses the risk of catching a further falling knife, it’s hard to see how much further the knife can fall. Presuming no price change between now and January 31, 2027, investors would receive a scant ~1% annualized rate of return but with a stock trading at a ~9.65X trailing cash flow multiple. Given an equity yield of approaching 9%, a dividend yield of 1%, free cash flow of better than $12.5 billion annually and a commitment to share buybacks and stated revenue growth guidance of ~11%, buying Salesforce shares seems a reasonable bet.

What This Means for Investors

The scenario math here is notably asymmetric. The downside case (multiple compresses to 9.65X) produces roughly breakeven. The base case (no multiple change) returns ~14% annualized. The upside case (multiple reverts only partway to 15X — still well below Salesforce’s historical average of 20X+) delivers ~49%. That asymmetry — limited downside, meaningful upside — is the core of the value thesis. The SaaS-pocalypse has already done most of its damage in the stock price. Meanwhile, the business model has been unfazed. The SaaS-pocalypse is not playing out.

QUANTITATIVE ONLY GETS YOU SO FAR

Seeking value investing treasure entails more than the Value Equation algorithm. Qualitative concerns are important. The SaaS-pocalypse reflects a potential assault on the moats of SaaS companies by AI technology disruption, so the question is whether the qualitative measures are supportive of an investment thesis.

MARKET SHARE

The market for CRM systems is broad, large and fragmented and Salesforce sits far atop its competitors with an estimated 22% market share and around 150,000 customers world-wide. Microsoft Dynamics 365 is the #2 global CRM vendor, with an estimated market share of 5%–6%.

MOAT

A May 14, 2026 report from The ETR Observatory (a proprietary market research report series by Enterprise Technology Research) noted:

“Salesforce ranks in the top three on seven attributes, including functional completeness (84%) and innovative roadmap (74%), and posts the highest ‘difficult to replace’ score at 68%, the clearest lock-in signal in the dataset. At the same time, it underperforms in ease of implementation (49%) and value for money (52%), reinforcing the view of the platform as essential but increasingly scrutinized economically. The product is also second in integration capabilities at 72%, though 12 percentage points below Dynamics in that measure.”

— ETR Observatory, May 14, 2026

The ETR report also notes that Salesforce ranks #1 in innovation with an affirmative vote from 40% of the IT professionals surveyed. The next best offering had an 11% vote. Doubtless, much of the innovation pertains to AI, where Salesforce has invested heavily. The ETR report noted that AI is reinforcing platform positions, rather than driving vendor change.

This AI platform reinforcement begins with AI agents, which Salesforce has been developing since 2023. AI agents are economically additive to Salesforce rather than cannibalistic. Agentforce and the broader Einstein stack are priced as premium workflow extensions, not substitutes for core CRM seats, which means AI adoption increases revenue per customer rather than displacing it. More importantly, agents depend on Salesforce’s structured customer graph — objects, metadata, workflow rules, permissions, and historical interactions — to operate reliably. That dependency deepens switching costs: once forecasting, service resolution, sales outreach, and marketing execution are automated through agents trained on Salesforce data, ripping out the underlying CRM becomes even more operationally disruptive. In effect, AI agents expand Salesforce’s total addressable market into workflow automation while simultaneously reinforcing the moat that the SaaS-pocalypse narrative assumes is weakening.

As a business leader whose companies have used Salesforce, I likewise see it as an application difficult to replace. That’s because much of the data our businesses have collected in our Salesforce applications wind up being used by multiple departments, ultimately finding its way to corporate performance reports and metrics. With Salesforce integrated into our SQL data tables and portfolio servicing platform, replacing the application in a secure enterprise system with ad hoc AI applications would not be a simple matter.

🔒 On Switching Costs

That 68% “difficult to replace” score from ETR is worth dwelling on. It’s not just about data lock-in. Enterprise CRM systems become organizational nervous systems over time — workflows, compensation structures, forecasting processes, and executive dashboards all get built on top of them. The marginal cost of switching is rarely just the software cost; it’s the re-engineering of every process that touched the platform. That’s a durable moat, and one that AI agents are more likely to extend than erode — since Agentforce and similar tools layer on top of the existing data graph rather than replacing it.

INSIDER CONFIDENCE

When company shares are this depressed, it’s helpful to see insiders buying. Recent open market investments by three Salesforce board members between December 2025 and March 2026 for $27 million reflect a confidence in the company’s competitive position, together with a presumed opportunistic view on share price levels. Given share prices that are materially lower as of this writing, their investment thesis would be stronger today. And then, of course, there is the company’s own large commitment to share repurchases, by now the highest in the SaaS universe given the use of leverage to accelerate its share repurchases in the first quarter of FY 2027. Investors in CRM shares can take comfort in the company’s confidence to acquire 10.25% of the company’s shares during the first quarter at a price ~35% higher than where you can buy the shares today.

FINANCIAL STRENGTH

At January 31, 2026, Salesforce was sitting on about $12 billion in cash and marketable securities, $12.5 billion+ in annual free cash flows and hefty investment-grade credit ratings of A2 and A+ from Moody’s and S&P respectively. The S&P rating has a negative outlook, which would get the rating in line with Moody’s.

With the company’s radical shift from 32.8% of the company’s Business Investment funded with borrowings and leases at the end of FY 2026 to 58.6% funding at the end of the first quarter, the unchanged ratings hinge on the company’s solid business model, recurring potent cash flows and prudent staggered debt maturities.

CRM’s Q1 OPM (borrowings and estimated lease proceeds) increased from $31.2 billion just over $56 billion to enable the company’s aggressive share repurchase initiative. The resultant Funded Debt to Free Cash Flow at the end of the first quarter remained healthy at 4.6X, with Effective OPM/Operating Cash Flow of about 3.4X.

During the first quarter of FY 2027, Salesforce repaid $6 billion of Informatica-related borrowings and issued about $30 billion in laddered term borrowings going out to 2066 to enable their share repurchase initiative. The laddered maturities — stretching out four decades — materially reduce refinancing risk and help preserve the company’s A-range credit profile despite the leverage spike. When it comes to defensive moats, financial strength absolutely matters.

RECOMMENDATION

With Salesforce generating free cash flows after dividends and maintenance CapEx on the order of $12.5 billion+ annually, a business model demonstrating sustained performance and a stock that is down more than half since its December 2024 all-time high, the company is highly worthy of an investing analysis. Those metrics mean that you can invest in the same company today, with more than 30% higher revenues at an approximate 55% discount. Meanwhile, the SaaS-pocalypse has the short interest continuing its surge. What was once short interest of around 1.5% now hovers around 4.5%, after peaking at 10% in March.

I believe in the importance of business fundamentals. And today, you can buy into Salesforce at a market equity yield approaching 9%, or around 2X Ten-Year Treasury Note interest rates. That cash yield alone approaches the long-run average returns of the S&P 500, with the company electing to retain almost 90% of that money to chiefly buy in shares. That’s a good use of money given basic business model returns approaching 14% that can be regularly augmented by an added 3% through ongoing share repurchases. Yes, it’s possible that AI eats into the Salesforce moat. But I don’t see it that way and neither does the company, which has been the single biggest buyer of its own shares. I am instead more inclined to believe that the company has a highly defensive moat – and one that AI is likely to help.

My recommendation regarding Salesforce is a Strong Buy.

APPENDIX: SALESFORCE VALUE EQUATION VARIABLES

There are seven central Value Equation variables and extracting them from reported corporate financial statements takes some work. The numbers in red are computed, whereas the numbers in black are inputs I made from the company’s year-end and first quarter corporate financial statements. Here are the calculations for the seven variables for Salesforce, starting with Sales.

Business Investment

The Value Equation looks to estimate the cost of net assets being used in the business. So, non-cash accounting entries are backed out whenever possible and leased assets are added using lease rate estimates to enable cost approximation – and this estimate will differ widely from useless non-cash “right to use” assets. Then free money, like trade payables, accruals and deposits is deducted to arrive at the amount financed by capital stack elements having a cost, namely borrowings, leases and equity.

Operating Profit Margin

Operating profit margin is derived from taking net income and then adding interest expense, rent expense, income taxes and a number of adjustments from the company’s statement of cash flows. (I had to estimate this for Salesforce, since they historically didn’t disclose it; going forward, with elevated borrowing levels, this is likely to change.) The company anticipated some margin improvement in 2027, which is evident in its first quarter results.

% of Business Investment Funded with OPM

Variable #4 is the amount of corporate borrowing and estimated lease proceeds as a percentage of Business Investment. The percentage funded by equity will just be the inverse of this.

OPM Cost

Variable 5 is just the cost of other people’s money, or OPM, which is generally comprised of borrowings and estimated lease proceeds, mostly provided by real estate landlords for the company’s offices, training centers and data centers. Given interest expense is small, Salesforce does not break it out, so I did a quick estimate.

Maintenance CapEx

Variable 6 is Maintenance CapEx, which includes periodic losses on investments as well as estimated Maintenance CapEx. Companies virtually never reveal this number, so here I assumed that all the company’s reported modest and consistent capital expenditures reflected Maintenance CapEx. I then offset this number with investment gains to arrive at a net zero for Maintenance CapEx. Salesforce is the rare company that, so far, has not shown losses from its meaningful corporate acquisitions activity. That is a definite risk going forward.

Income Taxes

Variable 7 is the tax rate, where I took reported income taxes and divided the number into pre-tax cash flow. Sometimes, you can get more precise if you know the amount of yearly changes in deferred tax assets and liabilities to arrive at a true cash number. However, those numbers are buried in the company’s cash cycle elements, which are factored in.

Cash Flow Cycle Adjustment

The idea of the Value Equation is to arrive at a current equity yield that is effectively similar to normalized cash flow from operations, adjusted for the principal component of financing leases and the amount of taxes withheld pertaining to exercised share grants. An important component that does not run through the income statement relates to changes in working capital, or cash flow cycle elements.

Assuming a similar mix of cash flow cycle assets and liabilities for 2027, the company’s elevated mix of OPM has the impact of elevating the equity yield impact from 1.33% to 2.43%.

Share Count Adjustment

With seasoned “cash cow” companies like Salesforce, share repurchases are common and have the impact of raising cash flow growth per share commensurate with the percentage of shares bought in. At the same time, Salesforce employees benefit from share grant issuance, which has the opposite effect.

Equity Valuation Multiplier

To convert the Value Equation from a mere formula to a universal enterprise business model begins with knowing the Equity Valuation Multiplier, or how much the shareholder equity is worth relative to its computed cost. This changes everything from the vantage point of the shareholder because, buying Salesforce shares for 3.4X cost alters the Sales:Business Investment Ratio from .47X to .24X and lowers the % of enterprise value funded with OPM from 58.6% at cost to 29.2% at market. The Maintenance CapEx variable is also impacted but is zero here.

Dividend Payout Ratio

The Value Equation computes the current equity yield, which is the largest founding block of investor returns. But a current yield is not a return unless it’s fully paid out to shareholders. So, return computation begins with the dividend payout ratio.

Expansion CapEx as a % of Free Cash Flow

Salesforce invested over $11 billion in FY 2026 on business acquisitions, the most material of which was Informatica. Given a known incremental Sales:Business Investment Ratio, such investments will impact the growth of cash flow per share. But, with Salesforce, the company integrated its investments into the overall product line, making a known incremental Sales/Business Investment elusive.

Same Store / Same Business Line Sales Growth

Many, if not most, companies fail to disclose this number, even if they’re retailers having multiple discrete points of sale. Salesforce just discloses targeted aggregate sales growth.

The Model Inputs Shown Together

The complete Value Equation Universal Business Model inputs are below and are all you need to compute the four main sources of shareholder return. Here, the green cells are computed and the black cells are all the inputs you need to create the universal business model and estimate returns.