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I see a lot of comments about why Salesforce would acquire them and what the product benefit would be. It's not the product they are acquiring, it's the busines

by pod123 6y ago

I see a lot of comments about why Salesforce would acquire them and what the product benefit would be. It's not the product they are acquiring, it's the business and more importantly their financials. Salesforce's market cap is primarily driven by its ability to keep growth rates high. That's hard to do for a 25 year old company with a mature product. The easiest way to prop your growth rate up is find a fast growing company with a somewhat related product and absorb their growth rate. Who better than slack growing in the 40% range with revenues that aren't insignificant for Salesforce. The challenge with that strategy (apart from the awful customer experience of cobbling those products together) is that the next year you have to keep doing these large acquisitions to maintain that growth rate.

kornish 6y ago
2019: Tableau (BI) 2020: Slack (messaging) 2021: Zendesk? (CS)
- inthewoods 6y ago
  Just my opinion, but I think Atlassian is a much more likely outcome.
  - skinnymuch 6y ago
    That would be pretty wild. Close to a merger even. Atlassian is growing steadily and their market cap has risen like so many others. Unless a huge recession And reset occurs, Salesforce, a ~$200B company would have to put down possibly $75B to get Atlassian. $225B is only 3x $75B.
adventured 6y ago
Slack's small contribution isn't going to make a serious dent in Salesforce's need for growth. Slack is adding $200m per year in sales growth and burning massive amounts of red ink to do it, which will harm rather than improve Salesforce's financial situation. Salesforce is approaching $20b in sales, to generate a mere 10% growth in the coming year they obviously need $2b per year in additional sales - that $200m from Slack is almost meaningless, other than being a shovel to the head of CRM shareholders in price paid to get it. Slack is such a horrible financial Titanic that post acquisition it'll destroy most of Salesforce's already mediocre profitability. Salesforce generated $463m in operating income in its most recent fiscal year; Slack lost $330m in operating income over the prior four quarters. Slack's growth prospects are bad to make matters worse. This deal will result in a giant writedown in the not very distant future. It'll eventually be considered a bad joke that someone paid ~$25 billion for Slack. For Slack's part, it's a brilliant exit. Get out while they can still fetch an extreme bubble multiple. Their stock had performed so poorly post IPO (while everything else cloud & remote zoomed) because the market knows their prospects are not great. In 2016 Salesforce was getting a valuation of about 10-12 times sales, before this latest mania really lifted off, with a market cap similar to or lower than what eg Snowflake is getting today (with Snowflake now doing around 1/9th the sales that Salesforce was back then, ha). Slack is getting 30-35 times sales on its exit with no evidence they have a great business that will endure (versus a mere product that Microsoft will forever be squeezing the financial life out of by making the segment inhospitable territory). It's not just a product? Sure it is, that's why it's about to end up in the belly of Salesforce as a really dumb acquisition mistake typical of later stage bubbles.
- mistrial9 6y ago
  my guess is as good as yours - but I surmise that the Slack tech stack is backed by strong security, "forever" tracking of users with strong, formal ties to userID (think dot-mil users) .. so the value of acquiring such a thing is that you are now welded into a new security environment, with sales opportunities there.. SF also developed strong security practices from the beginning, but not the same way.. SF insulates each user from each other.. (leads are trivially stolen by the guy at the next desk in a competitive sales environment). I believe that SF addressed that in version zero.. the two components combined spell .. hm.. you could probably name it differently than I would.. I am sceptic of this future.
- inthewoods 6y ago
  Great post - Your analysis is spot on financially, but I don’t think this is about growth. This is about further locking in customers and making sure that they aren’t crushed by Microsoft, Amazon, or Google. Microsoft is interesting because they’ve got a big alliance with them. But I’m sure they view Dynamics as a threat, and they’re own Chatter product is horrible. So all this is to say: this is strategic in their view, not about revenue. Of course there is nothing SV companies seem to like to do more than bail each other out!

by pod123 6y ago

kornish 6y ago

2019: Tableau (BI) 2020: Slack (messaging) 2021: Zendesk? (CS)

inthewoods 6y ago
Just my opinion, but I think Atlassian is a much more likely outcome.
- skinnymuch 6y ago
  That would be pretty wild. Close to a merger even. Atlassian is growing steadily and their market cap has risen like so many others. Unless a huge recession And reset occurs, Salesforce, a ~$200B company would have to put down possibly $75B to get Atlassian. $225B is only 3x $75B.

adventured 6y ago

Slack's small contribution isn't going to make a serious dent in Salesforce's need for growth. Slack is adding $200m per year in sales growth and burning massive amounts of red ink to do it, which will harm rather than improve Salesforce's financial situation. Salesforce is approaching $20b in sales, to generate a mere 10% growth in the coming year they obviously need $2b per year in additional sales - that $200m from Slack is almost meaningless, other than being a shovel to the head of CRM shareholders in price paid to get it. Slack is such a horrible financial Titanic that post acquisition it'll destroy most of Salesforce's already mediocre profitability. Salesforce generated $463m in operating income in its most recent fiscal year; Slack lost $330m in operating income over the prior four quarters. Slack's growth prospects are bad to make matters worse. This deal will result in a giant writedown in the not very distant future. It'll eventually be considered a bad joke that someone paid ~$25 billion for Slack. For Slack's part, it's a brilliant exit. Get out while they can still fetch an extreme bubble multiple. Their stock had performed so poorly post IPO (while everything else cloud & remote zoomed) because the market knows their prospects are not great. In 2016 Salesforce was getting a valuation of about 10-12 times sales, before this latest mania really lifted off, with a market cap similar to or lower than what eg Snowflake is getting today (with Snowflake now doing around 1/9th the sales that Salesforce was back then, ha). Slack is getting 30-35 times sales on its exit with no evidence they have a great business that will endure (versus a mere product that Microsoft will forever be squeezing the financial life out of by making the segment inhospitable territory). It's not just a product? Sure it is, that's why it's about to end up in the belly of Salesforce as a really dumb acquisition mistake typical of later stage bubbles.

mistrial9 6y ago
my guess is as good as yours - but I surmise that the Slack tech stack is backed by strong security, "forever" tracking of users with strong, formal ties to userID (think dot-mil users) .. so the value of acquiring such a thing is that you are now welded into a new security environment, with sales opportunities there.. SF also developed strong security practices from the beginning, but not the same way.. SF insulates each user from each other.. (leads are trivially stolen by the guy at the next desk in a competitive sales environment). I believe that SF addressed that in version zero.. the two components combined spell .. hm.. you could probably name it differently than I would.. I am sceptic of this future.
inthewoods 6y ago
Great post - Your analysis is spot on financially, but I don’t think this is about growth. This is about further locking in customers and making sure that they aren’t crushed by Microsoft, Amazon, or Google. Microsoft is interesting because they’ve got a big alliance with them. But I’m sure they view Dynamics as a threat, and they’re own Chatter product is horrible. So all this is to say: this is strategic in their view, not about revenue. Of course there is nothing SV companies seem to like to do more than bail each other out!