Further insight on Salesforce from two more readers; Increasing wealth concentration in the U.S.; Small-cap stocks are cheap right now relative to large caps; Credit spreads are tightening; Charity poker tournament tomorrow night

1) Yesterday, I shared several pieces of reader feedback on software titan Salesforce (CRM). That was following my "first look" analysis of the company on Monday.

Today, I want to pass along some more feedback from two readers...

The first is from an old friend who has asked to remain anonymous. He said, "I have a company that competes and [Salesforce CEO Marc] Benioff is already upset with me!"

Here are his views on Salesforce's business:

They have a great installed base, and it is not easy for their customers to switch. However they are losing out left, right, and center on growth opportunities, especially in the AI space. They have to develop solutions that can serve multiple end use markets. They are losing out to competitors that are focused on specific market segments and are able to develop better products and faster. Companies that used to depend on leads from Salesforce for add-on sales are now generating these direct. I expect attendance to be down at their imminent client meeting which used to be the biggest in the business.

Unless things change fast, this is a mature company run by arrogant management. Yes, it can generate plenty of cash, but it is no longer a growth business. Expect a large value-destroying acquisition as they look for growth that way.

Thank you, my friend!

The next section is reader Tom P.'s in-depth thoughts on the company. I'm including his commentary in its entirety because it includes some great, detailed insights on Salesforce's products and customers.

Here's what Tom has to say...

I work for a company that is a partner of Salesforce, but we have been moving towards other products because of some clear issues in their product development and partner ecosystem. I can tell you exactly why they are stumbling, and why I do not see much near-term potential. In fact, I think it will get worse.

To understand Salesforce, you need to get an idea of their product mix. The biggest license revenue generators are:

• Salesforce Sales Cloud/Service Cloud/Financial Services Cloud: These are your typical Customer Resource Management ("CRM") offerings.
• Salesforce Marketing Cloud: Their digital marketing platform that competes against Adobe, Klaviyo, Braze. This is used mostly for digital marketing through Email, SMS, Mobile, Web Personalization. You get a marketing email; this is what is typically used.
• Tableau: Their reporting/business intelligence platform.
• Slack/MuleSoft/Heroku/Datorama: These are smaller products that do not really contribute much to their bottom line, so I will not go over them in detail.
• Data Cloud: This is a Customer Data Platform ("CDP"), which is a system that connects to different data sources, joins, cleans, dedupes, and segments data to be used in other platforms. This is one of the platforms that they have put a lot of money and effort behind. This system feeds their other big potential product Agentforce, their AI agent tool. I will go over the issues with Data Cloud and Agentforce later, because this is critical when understanding the problems relying on these products as growth drivers.

As a partner, we have seen many leads from Salesforce dwindle over the last two years. The reason this is happening is because:

1. They do not care about the small or mid market anymore. The only partners they care about are the big consulting firms like PWC or Deloitte, who typically just work with large companies. They do not seem to have any interest in any deals that are less than $100,000. They rely on large customers buying additional products and services while completely ignoring the needs of smaller clients.

2. Because of the myopic focus on large customers, and a distorted view of the potential of Data Cloud and Agentforce, they have not made any significant developments or improvements to the Salesforce Sales Cloud, Salesforce Marketing Cloud, or frankly, any of their legacy products. Because of this, they are getting pummeled by competitors like Braze, Klaviyo, HubSpot, and others. These platforms have significantly improved their products, made them more user friendly, have better integration with social media... all of this while Salesforce has improved... nothing. The Salesforce products you get now are the same as they were five years ago. Not only that, they are charging far more than the above listed competition, so why pay more for dated products?

3. Purchase of Slack. I mean... what were they thinking? They paid almost $28 billion for a messaging platform. Salesforce thought that Slack would be the backbone to improve messaging within the Salesforce CRM environment. Almost think of it like capturing, and storing all Microsoft Teams messages into the Salesforce Sales Cloud CRM so you can easily see all messaging around a customer. Fine, not a bad idea, but $28 billion? Ridiculous! They could have built it in-house for a fraction of that. They would have been much better off paying $4 billion for Sprinklr to strengthen their Social Media offerings, but they paid 7 times that for Slack, which no one is really using. It seems the cost just isn't worth it when you can use Microsoft Teams.

Okay, so this is a number of reasons the stock has stunk in the last year. How about the future, namely Data Cloud and Agentforce? As far as I can see, and based on customer responses, they are not excited about these products.

Let's start with Data Cloud. Customers are not buying it because:

1. Clients do not seem to understand it. Keep in mind, Salesforce sells primarily to marketers and sales. Now good luck trying to sell a data product to these people. Many of my clients get calls from Salesforce saying they need Data Cloud, then they call me to get my opinion. Normally, they don't need it because it only makes financial sense to buy it if you have data scattered all over the place. If you are connecting into just a few data points, the juice ain't worth the squeeze. If you are connecting to multiple data points, need to dedupe, clean, and segment data, then it can make sense... But that brings us to the next problem...

2. Data teams do not want to use it. As I mentioned before, Salesforce is focusing on large customers... and these large customers have dedicated data teams that are protective of managing their data, so they do not want to deal with a data product that resides in a marketing product. Large scale data processes are typically done 1 of 2 ways. The data team builds scripts, connectors to outside data systems, aggregate calculations, and segments often through code.

The second way they do this is by using a CDP that ties into multiple systems, cleans, dedupes, segments, aggregates, etc... data using a dedicated, normally quasi user-friendly visual interface. This would typically be stored in a central data lake/data warehouse... not in a database located as part of the digital marketing platform. Data teams would rather centralize all their data in a platform like Snowflake, for example, do all the work in Snowflake, then push the data to Sales Cloud... With Data Cloud, it's sort of the other way around.

I've got nothing against Data Cloud, I think it is a good product, just that knowing how data and data teams work, it just does not fit, which is why no one is buying it.

That finally brings us to Agentforce, the other product they are banking on. As far as I'm concerned, it's just an AI chatbot. Sales reps can query Sales Cloud by typing [questions like] "How many sales have I closed this month?" They are also pushing it as a customer support agent. Have you ever used AI support agents? I have, and they stink. I always need to get an actual live person. Not only that, you need to buy Data Cloud to feed and train Agentforce. But here is what is even worse: other platforms have far better AI platforms. Snowflake Cortex AI is a million times better and more flexible than anything Salesforce has.

Even though Salesforce has a large installed base, it is basically a company with legacy software losing ground, an underpowered, overhyped AI agent that is not getting much interest, and an unpopular CDP platform.

This is not a recipe for success. They remind me very much of IBM: big customers, software behind the curve, and no "wow" products. They will be around for a long time but, just like IBM, the stock will be a slow burn.

Thank you for your insightful analysis, Tom!

These pieces of feedback are certainly making me doubt whether Salesforce is worth investing in. It smells like a value trap to me...

2) I came across two charts that further reinforce my view that companies catering to the wealthiest Americans are likely to continue to be long-term winners. Ones that come to mind include Chipotle Mexican Grill (CMG), Costco Wholesale (COST), and Lululemon Athletica (LULU).

The first chart is from Liz Ann Sonders, chief investment strategist at Charles Schwab (SCHW), shared on social platform X. It shows that the top 1% are getting richer:

The next chart is from Charlie Bilello's most recent Week in Charts. It shows that roughly half of all U.S. spending comes from the wealthiest Americans:

3) Speaking of Charlie Bilello, his weekly missive had some additional charts of interest...

This first set of charts highlights how small-cap stocks are trading at a historically large discount to large-cap ones:

The large cap S&P 500 is trading at over 22 times forward earnings vs. less than 16 times for the S&P 600 small cap index. We haven't seen a spread this wide since 2001.

This next set of charts underscores the high degree of complacency in the bond market:

Investment Grade credit spreads are at their tightest level since 1998 (0.74%) and High Yield credit spreads are near their tightest level since 2007 (2.69%). Both spreads are at roughly half their historical averages.

This is yet another warning flag I'm monitoring.

4) If you're in New York City tomorrow (Thursday) evening, I'll be at the 15th annual Take 'Em to School Poker Tournament for charity. It starts at 6 p.m. at Gotham Hall, 1356 Broadway.

For the sake of disclosure, I'll note that this isn't a Stansberry Research event. It benefits Education Reform Now, a wonderful nonprofit organization I co-founded two decades ago that's committed to ensuring all children have access to a high-quality public education, regardless of race, gender, geography, or socioeconomic status.

It's a first-class event featuring numerous athletes and celebrities, poker players battling for fabulous prizes, and cocktail guests enjoying great food, a variety of casino games, and entertainment. (You can see highlight videos from past years here.)

It's a lot of fun and, for any young person in – or looking to get into – New York's finance community, there's no better networking event. There are hedge-fund titans at nearly every table.

Poker tickets are sold out (if you want to be added to the wait list, please e-mail events@takeemtoschool.org). But cocktail tickets are available for only $250. You can buy a ticket at the door or on the website here.

If you come, be sure to say hi!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.