Salesforce / Slack market overreaction?

[ChpBstrd]

I've been watching Salesforce.com (CRM) for a while. On November 24, word leaked they were looking to buy Slack (WORK). On December 1, the news was confirmed and the price turned out to be $27.7 billion or roughly $44.70/share, a premium of 54%. Wall Street was not happy.

Since 11/24, CRM stock has fallen 14.1%, underperforming the Nasdaq by 10%. The stock fell from around $260 on 11/24 to $221 today. By December 7, CRM had lost $32B in market cap and it has lost a few billion more since then. As the following Forbes author noted, the amount of Salesforce's decline far exceeds the entire value of the proposed transaction. I'll note that this is true even when controlling for the performance of the broader market, the Nasdaq.

https://www.forbes.com/sites/georgecalhoun/2020/12/09/salesforce-to-buy-slack--a-case-study-in-value-destruction-part-1/?sh=84c240335df9

According to the author, the market appears to punish companies for increasing their complexity, but this sentiment can reverse on a dime. Yet it seems a bit extreme for Salesforce to lose more than the entire value of its purchase.

It's as if CRM received absolutely nothing for their money, plus were going to lose billions performing the transaction, and got no new growth potential, new customers to up-sell, developer talent, etc. It's as if the $15B in current assets wasting away on CRM's balance sheet had more growth potential than Slack. How can this be explained by efficient markets? One day Slack is an asset to its stockowners and the next day it is a net liability for Salesforce?

[J Boogie]

I've been watching CRM as well, I sold nearly all my stake after their pop in August.

I think this is related to that pop. They had a great quarter, but not something that would equate a 35% increase in the value of the company.

Ever since the market has been looking for reasons to get that share price back down to earth.

I would be looking to pick up a few more shares but I've been a bit bearish on anything like slack that MSFT is capable of replicating and integrating into its offerings seamlessly.

So for me, I perhaps entertain some synergies with slack and salesforce but since I live and breathe in the MSFT ecosystem I'd have to take someone else's word for it. If it sells off more I'll probably be buying for a short term rebound, nothing serious, just RSI chart based trading.

[achvfi]

My theory is that Market realized that  software licensing sales will be down, because companies are holding back their spend on future purchases and making do with existing setup to ride through this end of the year, earnings reporting season and Q4 early next year. Companies need to reduce expenses to makeup for losses this year.
This doesn't mean that demand for software products is not there, but its will be held back by top management at businesses.
This has shown up in few earnings so far. So there is going to lot of volatility in this sector for few quarters.

[PDXTabs]

According to the author, the market appears to punish companies for increasing their complexity, but this sentiment can reverse on a dime. Yet it seems a bit extreme for Salesforce to lose more than the entire value of its purchase.

As a software engineer that works at a company that uses both Slack and Salesforce I would tend to agree with Wallstreet on this one. Here, Salesforce is spending a huge premium to acquire Slack right when Microsoft is trying to eat their lunch with Teams. Also, it isn't adjacent to their current business as far as I can tell. It's like paying a huge premium to become the next GE.

How can this be explained by efficient markets? One day Slack is an asset to its stockowners and the next day it is a net liability for Salesforce?

Well, I don't believe in efficient markets but yes, that may be true.

[ChpBstrd]

According to the author, the market appears to punish companies for increasing their complexity, but this sentiment can reverse on a dime. Yet it seems a bit extreme for Salesforce to lose more than the entire value of its purchase.

As a software engineer that works at a company that uses both Slack and Salesforce I would tend to agree with Wallstreet on this one. Here, Salesforce is spending a huge premium to acquire Slack right when Microsoft is trying to eat their lunch with Teams. Also, it isn't adjacent to their current business as far as I can tell. It's like paying a huge premium to become the next GE.

I think it's more adjacent than that. A company that is only using its Salesforce licenses to track sales is missing the bigger picture - that SF can be used to for automation, reporting, and communication everywhere from HR and accounting to operations, and that it can be easily customized as business processes change.

It's a database/automation/reporting/communication platform that can be made to do anything. As such, they are playing Microsoft's game of expanding the ecosystem of use cases offered under one license, with more flexibility and customizability than Microsoft's canned products. Salesforce's angle of attack is being anti-software, which means not requiring developers with CS degrees to configure and customize it (hence Trailhead)(and as opposed to MS Dynamics).

Only problem is, there's still a learning curve and there's still the process of going back and forth with stakeholders to obtain requirements. This is perhaps SF's limiting factor. Slack might be Benioff's attempt to make it even easier to configure SF and to use his product instead of SharePoint, Dynamics, and about ten thousand pieces of narrow-application software. Expect a pivot in focus from sales to operations next year.

I'm not a fan of the acquisition. I think some Chatter improvements could have been made for a fraction of the cost, or Slack could have been bought a couple years from now for a song after Teams devastates it. However it was worth something. If nothing else, SF bought a much deeper bench of hard-to-find developers.

[GoCubsGo]

I bought CRM on the big dip after the acquisition news came through.  I think a Benioff/Butterfield combo will ultimately maximize the synergies as they are both great operators.  I do own quite a bit more of MSFT, and Teams is obviously a major threat but I'm hoping the synergies develop.  I think Saleforce service will only grow and as long as Slack continues to be a strong product they will get the sell-thru they need to grow even more.

[hodedofome]

I already bought and sold CRM using my RSI2 strategy, made a little money on the dip.

Just like we have 2 dominant players in cell phones (Apple and Google), we have 2 dominant players in business software. However, it looks a little different. Microsoft is the epitome of the ‘suite’ world, an all in one vendor that provides everything for you. The other world is not 1 company, but the entire Silicon Valley. They are the ‘best of breed’ world, you get the best app for that task and then integrate it with your other apps using open APIs. So you use Google for email, SalesForce for CRM, Zendesk or Servicenow for support, Slack for messaging, etc etc.

And just like there is plenty of room for two mobile OS’s, there’s room for two worlds in business software. Both slack and Teams will survive and thrive. SalesForce is just leading the Silicon Valley world as they were the first true SAAS company.

[PDXTabs]

And just like there is plenty of room for two mobile OS’s, there’s room for two worlds in business software. Both slack and Teams will survive and thrive.

I see your point, but there was also enough room for two social networks, but MySpace wasn't one of them. I don't know what moat Slack has that would prevent them from becoming the MySpace of workplace instant messengers.

[PDXTabs]

It's a database/automation/reporting/communication platform that can be made to do anything. As such, they are playing Microsoft's game of expanding the ecosystem of use cases offered under one license, with more flexibility and customizability than Microsoft's canned products. Salesforce's angle of attack is being anti-software, which means not requiring developers with CS degrees to configure and customize it (hence Trailhead)(and as opposed to MS Dynamics).

Maybe, every Salesforce developer I know makes a software engineering salary, but maybe they're really good at project management and requirements gathering too. IDK, I've never worked on Salesforce.

[hodedofome]

And just like there is plenty of room for two mobile OS’s, there’s room for two worlds in business software. Both slack and Teams will survive and thrive.

I see your point, but there was also enough room for two social networks, but MySpace wasn't one of them. I don't know what moat Slack has that would prevent them from becoming the MySpace of workplace instant messengers.

Slack’s moat is that it is Silicon Valley’s choice for business messaging apps. People in the Silicon Valley world hate Microsoft and want to use tools made by somebody else. That somebody else is usually an app made in Silicon Valley. The app for this task is Slack, which integrates well with all other Silicon Valley apps. It is also much nicer and more elegant than Teams, and since anyone could sign up for a Slack account from the beginning it has use cases outside of just day to day work.

[ChpBstrd]

And just like there is plenty of room for two mobile OS’s, there’s room for two worlds in business software. Both slack and Teams will survive and thrive.

I see your point, but there was also enough room for two social networks, but MySpace wasn't one of them. I don't know what moat Slack has that would prevent them from becoming the MySpace of workplace instant messengers.

Slack’s moat is that it is Silicon Valley’s choice for business messaging apps. People in the Silicon Valley world hate Microsoft and want to use tools made by somebody else. That somebody else is usually an app made in Silicon Valley. The app for this task is Slack, which integrates well with all other Silicon Valley apps. It is also much nicer and more elegant than Teams, and since anyone could sign up for a Slack account from the beginning it has use cases outside of just day to day work.

I suspect Salesforce views the operating system as an area of diminishing importance - soon to be relegated to the realm of drivers and other unseen mechanicals - while the actual productivity magic occurs through browsers and mobile apps. Microsoft is still more planted in the realm of installing software on a local drive, despite their modest and disappointing investment in Office 365, a reaction to Google apps.

With the latest Russian hack of Microsoft systems, it'll be interesting to see how many organizations give up on storing and transacting their data on local networks and individual machines, and instead outsource all that trouble to cloud providers. Once you've gone cloud, it becomes tempting to get to the internet through an Apple OS, Chrome, or even linux. At least two of these offer massive savings compared to the Microsoft ecosystem and arguably all 3 offer security advantages.

[J Boogie]

I already bought and sold CRM using my RSI2 strategy, made a little money on the dip.

Just curious, did you have to bend your rules a bit? I will bend the rules if I really the like the company (MSFT, TGT, UNH, PYPL etc) but otherwise CRM never made it deep enough into oversold territory for me to rotate into it.

[hodedofome]

I already bought and sold CRM using my RSI2 strategy, made a little money on the dip.

Just curious, did you have to bend your rules a bit? I will bend the rules if I really the like the company (MSFT, TGT, UNH, PYPL etc) but otherwise CRM never made it deep enough into oversold territory for me to rotate into it.

No, if the 2 day RSI closes below 10, I buy it. When it closes above 90, I sell it. Simple as that. What is hard is picking the right sticks to do it on.