The U.S. stock market has soared in the previous year, but Wall Street still sees buying opportunities. JPMorgan analyst Cory Carpenter has set a $100 objective for Roku (NASDAQ: ROKU), a 56% increase from its current price. Morgan Stanley analyst Keith Weiss has a bull-case target of $485 per share for Salesforce (NYSE: CRM), a 60% upside from its present price.
Investors should be skeptical of price targets, especially from individual analysts. But Roku and Salesforce deserve more thought. Both stocks have strong market positions and appropriate valuations for potential development.
1. Roku Roku's fourth-quarter earnings were dismal. Revenue rose 14% to $984 million, but per-user revenue fell 4% to $39.92. Management attributed that to strong active account growth in overseas regions, where the business is still seeking size over monetization. It could also indicate a lack of pricing power owing to Amazon and Netflix rivalry.
The company reported a GAAP loss of $0.55 per share, but Wall Street expected $0.52. Management predicted a first-quarter loss of $0.90 per share, higher than projected. Roku continues confident in its potential to accelerate sales growth and reach profitability, and its strong competitive position in the developing connected TV (CTV) advertising market reinforces that belief.
Roku OS was the best-selling TV operating system in the U.S., Canada, and Mexico last year, and Roku is the leading streaming platform by viewing hours. The Roku Channel, its ad-supported streaming channel, ranks seventh in viewing time. That beats Paramount+ by Paramount Global.
Thus, when streaming media replaces pay TV, Roku will profit. Statista expects CTV ad expenditure to climb 15% yearly through 2027 in its largest market, the U.S. Roku might replicate that sales growth, making its 2.6 times sales valuation acceptable.
In coming quarters, investors should track average revenue per user. Further decreases would support Roku's pricing power loss. But investors who are comfortable with that risk should buy a small investment in this stock today, knowing that a 56% return in 12 months is not guaranteed. That conclusion would require rapid revenue growth and high profitability.
2. Salesforce Salesforce surpassed top and bottom-line projections in the fourth quarter. Data integration and analytics solutions drove 11% revenue growth to $9.2 billion. Non-GAAP (adjusted) net income rose 36% to $2.29 per diluted share as the company focused on margin improvement.
Management also reported a 17% growth in RPO in the fourth quarter. RPO monitors contracted revenue that hasn't been realized, indicating sales pipeline momentum. RPO rising faster than sales suggests top-line growth may accelerate in the future quarters. Either way, investors should be optimistic.
Salesforce dominates CRM software. Its platform has apps to boost sales, marketing, commerce, and customer service productivity. Salesforce delivers analytics, application development, and data management solutions, and Einstein Copilot, a generative AI assistant, can answer inquiries, summarize information, and provide insights.
Salesforce has several options to attract and retain clients due to its extensive CRM platform. Recently, CFRA analyst Angelo Zino called Salesforce "the most comprehensive and feature-rich" CRM platform for medium-sized and big firms.
With that in mind, Grand View Research predicts 14% annual CRM spending growth until 2030. Salesforce may gain more than any other software seller from that tailwind. Wall Street predicts 10% yearly sales growth for the next five years. If Einstein Copilot generates significant revenue, that estimate might rise.
The current price of 8.6 times sales is acceptable given Wall Street analysts' sales growth forecasts. Investors should buy a small holding today, but not expecting a 60% return next year. Salesforce should be held for three to five years as a long-term investment.
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