Shares of customer relations management company Salesforce (NYSE:CRM) closed nearly 4% higher on Tuesday after it announced a plan to increase prices beginning in August.
In a statement published on its website, Salesforce said it will be increasing list prices by an average of 9% across Sales Cloud, Service Cloud, Marketing Cloud, Industries, and Tableau.
“Salesforce’s last list price increase was seven years ago, and since then the company has delivered 22 new releases, thousands of new features—including recent generative AI innovations—and invested more than $20 billion in research and development,” the company said in an announcement discussing the changes.
The cost of Professional Edition will increase by $5 to $80, Enterprise Edition will increase by $15 to $165, and Unlimited Edition will now cost $330, up $30.
In the view of analysts at Evercore ISI, the price hike is reasonable and could provide a potential tailwind for earnings.
"While there will clearly be some complaints from customers about the price increase, after a 7-year hiatus, we believe that a 9% increase is pretty reasonable given that other SaaS companies have passed through annual increases in the 4-5% range," analysts wrote in a note to clients.
They added, "Clearly, for big customers and customers adding new modules, we expect the net impact will not be anywhere near 9%, but we expect these price actions could provide a bit of a tailwind for CRM into 2H FY24 and 1H FY25."
Needham & Company analysts hiked the price target on CRM stock by $20 to $250 per share as new prices offer an "opportunity for top and bottom line benefit."
"We conducted a quick analysis to evaluate the potential incremental revenue and earnings uplift from this new pricing, and concluded that there is the potential for $229mm of revenue uplift in the first 12 months (4Q24 - 3Q25) and given there will be minimal costs tied to this additional revenue, EPS could increase $0.16 or a 2% uplift from our $8.01 estimate for this 12-month period. We estimate the full annualized impact (because 4Q24-3Q25 does not have a full year revenue impact) could approximate rev/EPS of $366mm/$0.26. The $0.26/share increment to annual EPS is 3.2% of our estimate and in line with yesterday's 3.9% share move," they said in a client note.
Similarly, BofA analysts estimate that the new prices will yield a 1-2% tailwind to cRPO as early as the second half of this year.
(Additional reporting by Senad Karaahmetovic)