Salesforce’s Slack Acquisition: An Analysis

By Sramana Mitra of 1 Million by 1 Million

Thursday, December 3, 2020 10:55 AM EST

Photo Credit: Open Grid Scheduler / Grid Engine /Flickr.com

For the recently reported quarter, Salesforce (NYSE: CRM) crossed a milestone of $20 billion in annual revenues. But the market has been abuzz with the news of its $27.7 billion acquisition of Slack.

Salesforce’s Financials

Salesforce’s revenues for the third quarter grew 20% to $5.42 billion, above analyst estimates of $5.25 billion. Adjusted earnings of $1.15 per share was also better than the market’s forecast of $0.75 per share.

By segment, Subscription and support revenues grew 20% to $5.09 billion, Professional services and other revenues grew 22% to $330 million.

Among key metrics, remaining performance obligation grew 17% over the year to $30.3 billion. Current remaining performance obligation grew 20% to $15.3 billion.

For the fourth quarter, Salesforce forecast revenues of $5.665-$5.675 billion and an EPS of $0.73-$0.74 versus analyst estimates of revenue of $5.51 billion and an EPS of $0.85. Salesforce expects to end the current fiscal with revenues of $21.1-$21.11 billion and an EPS of $4.62-$4.63. The market was looking for revenues of $20.77 billion with an EPS of $3.73.

Salesforce’s Product Growth

Salesforce recently announced several product enhancements. It released its new product called Digital 360 that combines new innovations from the Salesforce Customer 360 platform for customer engagement. The service comes with features such as Customer 360 Audiences, Commerce Cloud Payments, and Experience Cloud. Customer 360 Audiences is a customer data platform built for marketers to unify segments and activate all of the customer data. Commerce Cloud Payments is a payment solution powered by Stripe and Experience Cloud helps accelerate the creation of CRM-powered digital experiences.

Slack Acquisition

The biggest news though was concerning its plans to acquire San Francisco-based Slack (WORK) for a whopping $27.7 billion. The acquisition ends Slack’s foray into the public market. Slack, founded in 2010, had listed last year at a valuation of $19.5 billion. But continued losses had hurt its valuation. By the beginning of 2020, Slack’s valuation had slipped by nearly 40%.