Salesforce a buy on $27.7bn Slack acquisition?

Investments

Cloud software pioneers Salesforce (CRM) is to buy work-chat service supplier Slack (WORK) for $27.7bn.

Slack will be the biggest acquisition that Marc Benioff-owned Salesforce has made to date. Shares dropped by around 5% upon the news, due to the size of the deal.

Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce common stock under the deal. Salesforce agreed to pay a 55% premium to Slack stock’s November 24th 2020 closing price.

Based on the size of the deal, and its potential making Slack a major player in the business comms stakes, our rating on the Marketsx platform, based on analyst’s insights, is a strong buy.

At the time of writing, Salesforce avg. price target is now $291.53 – an upside of 21%.

The deal is to give both Slack and Salesforce a shot a levelling the playing field against current sector leader Microsoft. The Seattle-based software giant has been busy in lockdown, with Teams seemingly becoming the de facto software intra-business communications choice during the pandemic.

Microsoft can, however, boast a marketing budget to make Croesus blush, and already has elephantine brand recognition. Additionally, it has bundled Teams in its Office business software packages, which makes its ubiquity alongside other day-to-day standard apps like Word and Excel, less than surprising.

Slack, which launched in 2014, hasn’t had the backing that Teams can boast. However, governments and companies have been switching over to it in larger numbers as they seek out a nimbler alternative to email. Is email really in danger of becoming electronic snail mail? Probably not, as Outlook is pretty much industry standard, but with Salesforce’s backing and investment, Slack may see larger widescale adoption.

For instance, Salesforce could pull a Microsoft and package Slack alongside its other business software options to mirror Office 365.

Salesforce is casting a wider net of acquisitions. It picked up Tableau Software, a data analytics specialist, last year for cool $15.7bn and was even in the running to secure LinkedIn in 2016 before Microsoft hoovered up the social media platform.

Work-from-home enablers are particularly hot right now. But a vaccine is knocking on the door, with the UK approving the Pfizer BioNTech vaccine for mass roll out this week, so will people still be working from home as “normality” reasserts itself? Probably. The benefits are being widely felt, and there’s a general feeling amidst workers of all stripes that home working, with all its added flexibility, is the future.

Certainly, this all plays into Benioff’s vision of a world governed by cloud-based computing. Software as a service is very quickly becoming the model for developers and suppliers globally, so it stands to reason Salesforce is moving to shorten the gap between itself and Microsoft.

Salesforce reported October quarter earnings and revenue that topped analyst estimates following on from big investment gains on Snowflake stock.

As such, Salesforce earnings rocketed to $1.74 a share. Its gains from investments totalled 86% in latest earnings, the company said, with revenues rising 20% to hit $5.42bn.

Slack is due to report its Q3 2021 earnings after market close on Wednesday 9th December.

Dow reshuffle: Exxon, Pfizer, Raytheon out; Amgen, Salesforce.com, Honeywell in

Equities
Indices

Major changes to the Dow Jones Industrial Average have been announced in the wake of Apple’s 4-for-1 stock split.

Exxon Mobil, Raytheon and Pfizer are to be dropped – all stocks dropped on Tuesday after the announcement late on Monday. As of August 31st, they will be replaced by Honeywell, Salesforce.com and Amgen. All three rose sharply on anticipated rebalancing into these stocks by passive and tracker funds.

It leaves United Health the largest stock on the Dow, with the Apple stock split reducing its weighting as the Dow is a price-weighted index. Many may question why the likes of Amazon, Facebook or Alphabet have not been included instead, but the thinking around index composition for the Dow has never been entirely clear.

What do hedge funds, analysts and insiders say about these new Dow components?

Amgen (AMGN)

Honeywell (HON)

Salesforce.com (CRM)

Week Ahead: Republican convention fires starting pistol on Presidential election

Week Ahead

The Republican convention this week marks the end of the phoney war and start of the campaign proper in the race to the White House. After striking a record high last week, investors are eyeing a potential rise in volatility as the election approaches. Meanwhile there will be a lot of backwards-looking data to be released in the coming days that could move the markets.  

Republican convention fires campaign starting pistol 

The Republican convention will not only mark the starting pistol for this year’s presidential run, but also the race for the 2024 GOP candidate. Market attention will increasingly come around to the November presidential race with barely over two months left until polling day. Vix futures indicate investors are starting to position for more volatility as the election approaches. Find out all you need to know about the election and follow our special coverage.

Economic data to watch 

There is a lot of economic data to get through this week. New Zealand’s retail sales print gets us underway as markets open for the trading week. On Tuesday we are looking at a couple of tentatively scheduled events – the UK’s monetary policy report hearings and US Tresury currency report. Certain to happen that day is the US CB consumer confidence report. 

Wednesday sees the weekly crude oil inventories report as well as US durable goods orders and Australian construction activity. On Thursday the US weekly initial jobless claims number gets released, which has become the most-closely watched high frequency economic indicator. Look also at the pending home sales and preliminary (second estimate) GDP numbers. 

More US data rounds out the week on Friday with the Fed’s preferred inflation gauge, the core PCE price index; personal spending; University of Michigan consumer sentiment; and the Chicago PMI on the slate. 

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Earnings to watch 

Ad titan WPP reports it interim results for the six months ended June 30th on Thursday. The advertising giant is a useful barometer of economic confidence. Big brands have slashed marketing budgets to cope with pandemic and WPP has warned of the hit it will take this year. But rival Publicis reported a 13-% drop in second quarter like-for-like sales, which was well ahead of the –20% anticipated. Shares in WPP are down over 40% this year – could Publicis offer a clue as whether the stock may find a new course? We are also interested in recruiter Hays – which reports finals on Thursday and is often a great indicator as to the overall health of the labour market globally. 

Salesforce.com (CRM)  is expected to deliver earnings and revenue growth when it reports numbers for the quarter ended July on Tuesday. EPS is seen at $0.7 on revenues of $4.9bn. 

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