CALLCRM3 months ago5.6Kviews

Salesforce: the mix shift is now accretive rather than dilutive

Cloud crossed two thirds of revenue and its gross margin is now above the legacy line. Every further point of mix is accretive, which was not true two years ago.

Daniel Okafor@daniel_okafor

Evidence · 5 cards

The case

Salesforce: the mix shift is now accretive rather than dilutive

Cloud crossed two thirds of revenue and its gross margin is now above the legacy line. Every further point of mix is accretive, which was not true two years ago.

The edge

The Street says

Consensus models the cycle turning in the second half
Sell-side target clusters within 8% of spotAuto

I say

The turn already happened in order intake two quarters ago
My number is 14% above the street on the out yearCreator est.

Checklist

Order intake inflected
Pricing held through the renewal cycleAuto
Capacity expansion fundedCreator est.
Second source contract signed

The steelman

The counterpoint

“Capacity additions announced this year land in exactly the window your target needs supply to stay tight.”

The counter-counterpoint

They land, but they land at trailing-edge nodes. The tightness is at the leading edge, where the announced capacity is a rounding error until 2028.

The analyst chose to be challenged and answered on the record.

The driver is gross margin arithmetic on the mix. Two revenue lines with different margins blend to a company number that moves purely with the weighting, so mix shift alone changes reported profitability without any operational improvement. The mix is now explicit. Cloud passed two thirds of revenue this quarter and management confirmed its gross margin is above the on-premise line, which reverses the sign on every remaining point of transition. The position: long on Salesforce, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. The risk is that the migration stalls with the mix half-shifted. A stalled transition holds the blended margin at the worst point of the curve, and there is no obvious catalyst to restart it.

Discussion · 8

Noa BergmanJUN 2

I think the setup matters more than the thesis here. The distinction between adequate reserves and the earnings path is well made. What would you need to see to add rather than hold?

Omri ShakedJUN 2

Finally someone put numbers on this. The comp table did more work for me than the narrative did. Does the same logic apply to the closest comparable?

Pauline VidalJUN 1

I have been waiting for someone to make this argument. Splitting volume from price is what makes this legible. How much of this do you think is already in the buy side's numbers?

Daniel OkaforAuthorJUN 1

Fair challenge. Invalidation is a close below the lock price on volume, and I should have written that into the card rather than leaving it implicit. (745)

Pauline VidalJUN 1

Good to see an invalidation level actually stated. The capital intensity point is the one I keep coming back to. How much does this depend on the macro cooperating?

Marco BianchiMAY 31

Finally someone put numbers on this. The depreciation schedule really is the whole disagreement. Curious whether you would still size it the same at a higher entry.

Dana KatzMAY 31

Respectfully, I think this overstates it. The lag between intake and revisions is the whole trade. Where does this break if rates back up another 50bp?

Noa BergmanJUN 1

Finally someone put numbers on this. The lag between intake and revisions is the whole trade. Any view on how the read-across affects the rest of the group?