☁️ Will Salesforce’s Slack Acquisition Pay Off?

🚲PTON posts bigger loss; Ford to cut production again.

Aug 27, 2021

Hey Global Investor! Here's what you need to know before the US markets open.

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☁️ Salesforce: No Slacking Off On Growth?

Cloud software company Salesforce Inc. (CRM) comfortably beat estimates in Q2. It recently completed the acquisition of Slack for $27.7B and raised the guidance for the year. Value creation for the shareholders seems to be in full swing at one of the most valuable software companies. (Tweet This)

Acquisitions: A Core Strategy

Salesforce beat expectations for the May-July quarter as the shift to hybrid work kept demand for its cloud-based software strong.

Key Stats From Q2:

Revenue: $6.33B Vs. $6.24B expected - the highest ever in a quarter
EPS: $1.48 Vs $0.92 expected

For the full year 2021, revenue is expected to be around $26.25B and EPS around $4.37, both ahead of analyst estimates. The operating margin for the year is expected to improve to 1.8% (from 1.4%).

This past quarter, Salesforce expanded its offerings to include investment banks through its Corporate and Investment Banking for Financial Services Cloud. This cloud tool helps maximize banker efficiency and productivity while ensuring compliance and client engagement.

Acquisitions have been an important strategy for Salesforce. In 2018, it paid $6.5B to acquire MuleSoft, the leading platform for building application networks. The following year, data visualization company Tableau was snapped up for $15.3B. The Slack deal just got done last quarter.

Each of these acquisitions has become a billion-dollar annual revenue-generating business for Salesforce. And in so doing, the company has easily surpassed the likes of IBM, Oracle, and Intel in terms of market cap.

How bullish the company’s management is evident from just one tidbit: the company does not find the Delta variant to be material to its business. If anything, the management only sees it as a further impetus to accelerate its business.

More Room For Slack

Salesforce’s acquisition of Slack puts the company in direct competition with Microsoft Teams. At the end of Q2, Slack had 169K paid subscribers, but that’s not an apple-to-apple comparison with Teams’ 250K monthly active users which includes paid and unpaid subscribers.

For Q2, Slack’s standalone revenues stood at $273.4M, up 36% Y-o-Y. The company is not profitable yet. Salesforce is looking to drive profitability at scale for Slack. For the remaining two quarters, it expects Slack to contribute $530M to the top line.

The initial reaction to the Slack deal was tepid with Salesforce’s shares falling 8% the day after the deal was announced back on December 1st 2020. But with the realization that remote working is here to stay, shareholders are warming up to Slack being a part of Salesforce’s product portfolio and the company shares are up 21% since the deal was signed.

So where does Salesforce go from here? It’s sights are set on displacing SAP as the largest enterprise software company in the world. Given the way things are going, there appears to be no reason to doubt that will happen. With Slack in its arsenal, there’s no slacking off for Salesforce!

Market Reaction
CRM ended at $267.79, up 2.66%.

Company Snapshot 📈

CRM $267.79 +6.94 (2.66%)

Analyst Ratings (47 Analysts) BUY 81% HOLD 19% SELL 0%

Newsworthy 📰

As Expected: Peloton posts wider-than-expected loss as sales growth slows, recall costs hit profit (PTON -6.27%)
Reduction: Southwest Airlines cuts flights to fix operational challenges (LUV -1.91%)
Again: Ford to cut F-150 pickup truck production due to chip shortage (F -2.05%)

Later Today 🕒

Big Lots Inc. Earnings (BIG)
Hibbet Inc. Earnings (HIBB)
6:00 PM IST: Consumer Spending
7:30 PM IST: Fed Chair Jerome Powell Speaks At Virtual Jackson Hole Symposium

Fun Fact of The Day 🌞

The upside-down ketchup bottle earned its inventor $13M

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