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MarketScreener Homepage  >  Equities  >  Nyse  >  Slack Technologies, Inc.    WORK


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Salesforce's Deal for Slack Faces Post-Pandemic Test

12/03/2020 | 12:48pm EST

By Aaron Tilley

Salesforce.com Inc.'s proposed purchase of workplace collaboration software pioneer Slack Technologies Inc. was prompted by the pandemic, but its success will hinge on whether it delivers in the post-lockdown world, analysts say.

Salesforce for years had explored potential deals with Slack, including investing in the company, according to people familiar with the talks. But it wasn't until Covid-19 sent millions of people home to work remotely that Salesforce came to terms with the app maker -- agreeing to pay more than 50% above Slack's closing price the day before The Wall Street Journal broke news of the talks.

Salesforce Chief Operating Officer Bret Taylor, one of the architects of the $27.7 billion deal, including cash and debt, said that how its customers and the wider business world reacted to the health crisis, by more rapidly adopting digital tools, drove the two companies together.

"The technology that Slack made felt more relevant than ever before. That really motivated us to get into these discussions now," Mr. Taylor said in an interview.

The deal will transform Salesforce into one of the largest players in business software, and, analysts say, help turn it into a more formidable opponent against Microsoft Corp., which has been pushing its Teams software suite -- which includes Slack-like functions -- as a new operating system for companies.

But the acquisition comes with challenges, and risks.

"Slack is a nice start, but it's not the end," said Gregg Johnson, a former Salesforce executive who led development of the company's private social-network product called Chatter and left the company in 2016. "If Salesforce wants to compete head-to-head with Microsoft, they need more than what Slack has to offer."

One area the company may need to beef up, Mr. Johnson said, is in video technology -- a feature for which Microsoft and Zoom Video Communications Inc. have drawn investor enthusiasm while Slack largely missed out.

And the price Salesforce is paying for Slack "seems rich," UBS analyst Karl Keirstead said, driving up the stakes to deliver an attractive return for the investment. Analysts broadly trimmed their expectations for Salesforce's profitability to reflect the addition of Slack, which has been posting losses.

Salesforce, which spent $15 billion last year on data-analytics platform Tableau Software Inc., has drawn analyst and investor criticism for some of its deal making and the impact on its profitability. Salesforce shares are down around 14% since the Slack deal news first surfaced.

Mr. Taylor arrived at Salesforce through one of those acquisitions, when the company bought document collaboration startup Quip Inc. in 2016 for more than $500 million. The Quip acquisition was part of an earlier effort by Chief Executive Marc Benioff to break into the workplace-collaboration market, though analysts say it hasn't become a meaningful success.

The company didn't respond to a request for comment on how Quip is doing.

Salesforce said it would make Slack a primary interface its customers will use to tap into its broader suite of software tools. But some analysts argue that bringing Salesforce's software together with Slack's could be a challenge or take time. When Microsoft bought the business-focused social-media network LinkedIn Corp. in 2016, it moved slowly on the integration in part out of concern moving quickly could be disruptive.

Slack had long been considered an acquisition target by analysts, but Chief Executive Stewart Butterfield pursued a solo path as he preached a vision of an office in which collaboration software was an alternative to office email and a platform around which companies could integrate various business tools.

Slack rejected a takeover proposal from Microsoft in 2015, and the startup went public last year.

To assemble the deal that was unveiled Tuesday, Mr. Taylor, a former chief technology officer at Facebook Inc., and Mr. Butterfield drew on personal ties built up over more than a decade. The two executives, who both have a history working at startups, got to know each other, Mr. Taylor said, when Mr. Butterfield ran Flickr, the social photo-sharing platform that was bought by Yahoo Inc.

"I've known Stewart for many years, and I've retained that relationship since I've been at Salesforce," Mr. Taylor said. "That has been really an asset in these discussions."

Mr. Butterfield, speaking at Salesforce's annual customer meeting on Wednesday, said, "This is a pivotal moment and the opportunity to really transform the way that we work so that we're not as reliant on the physical office."

When Mr. Taylor and Mr. Butterfield put forward their idea for a deal, Mr. Benioff said he was easily convinced to pay top dollar for Slack. "This is bigger than I've ever thought it could be," he told analysts on Tuesday, as Salesforce posted record quarterly sales and a revenue outlook that beat Wall Street expectations.

The proposed transaction isn't just Salesforce's largest, it also the latest this year in which a big tech company has used its pandemic-fueled stock price to help pay for a costly acquisition.

Graphics chip maker Nvidia Corp., whose shares soared as videogaming took off with people quarantining at home, said it would use stock in its planned $40 billion acquisition of chip-design specialist Arm Holdings. And Advanced Micro Devices agreed to buy chip maker Xilinx Inc. for $35 billion with shares.

Salesforce shares were up around 50% this year when the Journal first reported the company was in advanced talks to buy Slack. Mr. Benioff said the company's success during the pandemic emboldened it to strike. When the virus first struck, Salesforce was cautious, he said.

"We were hiding, and we were like everyone else under our desks. Then we've realized, wait a minute, we can succeed through this."

Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

12-03-20 1247ET

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More news
Financials (USD)
Sales 2021 888 M - -
Net income 2021 -320 M - -
Net cash 2021 606 M - -
P/E ratio 2021 -76,7x
Yield 2021 -
Capitalization 24 575 M 24 575 M -
EV / Sales 2021 27,0x
EV / Sales 2022 21,1x
Nbr of Employees 2 510
Free-Float 84,0%
Duration : Period :
Slack Technologies, Inc. Technical Analysis Chart | WORK | US83088V1026 | MarketScreener
Technical analysis trends SLACK TECHNOLOGIES, INC.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 22
Average target price 43,33 $
Last Close Price 42,65 $
Spread / Highest target 7,85%
Spread / Average Target 1,60%
Spread / Lowest Target -29,7%
EPS Revisions
Managers and Directors
Daniel Stewart Butterfield Chairman & Chief Executive Officer
Allen Sanghyun Shim Chief Financial Officer
Callum James Henderson-Begg Chief Technology Officer
John L. O'Farrell Lead Independent Director
Andrew G. Braccia Independent Director
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1st jan.Capitalization (M$)
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