Cloud Stocks: Salesforce Can Transform Slack PaaS, Acquisition Still Pending

I’m publishing this series to discuss a topic that I follow closely — cloud stocks, trends, strategy, acquisitions, and more. I like fundamentals-focused business building, and outline the principles of fundamentals-focused business building in my free Bootstrapping course.

Salesforce (NYSE: CRM) recently announced its fiscal fourth-quarter results that surpassed market expectations. While the company continues to grow through acquisitions and product development, its weak earnings outlook for the current year sent the stock falling 5% in the after-hours session.

Salesforce’s Financials

Salesforce’s revenues for the fourth quarter grew 20% to $5.82 billion, above analyst estimates of $5.68 billion. Adjusted earnings of $1.04 per share was also better than the market’s forecast of $0.75 per share.

By segment, Subscription and support revenues grew 20% to $5.48 billion, Professional services and other revenues grew 18% to $341 million.

Revenues for the year grew 24% to $21.25 billion with Subscription and Support revenues growing 25% to $19.98 billion and Professional services and Other revenues increasing 21% to $1.28 billion. Adjusted earnings was $4.92 per share.

For the first quarter, Salesforce forecast revenues of $5.88-$5.89 billion with an EPS of $0.88-$0.89. The market was looking for revenue of $5.72 billion and an EPS of $0.76. Salesforce expects to end the current fiscal year with revenues of $25.65-$25.75 billion and an EPS of $3.39-$3.41. The market was looking for revenues of $25.42 billion for the year with an EPS of $3.54.

Salesforce’s Vaccination Cloud

Earlier last month, Salesforce also announced the release of Vaccine Cloud, a technology to help government agencies, healthcare organizations, businesses, nonprofits, and educational institutions deploy and manage their vaccine programs more rapidly, safely, and efficiently. Currently, several government and nonprofit agencies worldwide are tasked with providing Covid-19 vaccines to citizens. However, most of these agencies and organizations do not have the technology infrastructure in place to handle the complexity, speed, and scale necessary for vaccine administration. Governments are partnering with private sector companies to manage this mass vaccination effort. Salesforce is helping these agencies manage the technology specifically for vaccine logistics.

Salesforce’s Acquisitions

Recently, Salesforce announced the acquisition of Virginia-based Acumen Solutions. Founded in 1999 by David V. Joubran, Acumen leverages Salesforce’s technologies to provide solutions that help companies and government agencies deliver connected digital experiences. Digital transformation is especially critical under the current pandemic conditions.

Salesforce plans to leverage Acumen’s expertise within its Professional Services division by integrating it with Acumen’s industry knowledge and expertise. It will also be able to provide customers with products and solutions that better suit their needs. Acumen’s funding and financial details prior to the acquisition are not disclosed.

Last year, Salesforce had also announced the $27.7 billion acquisition of Slack. The deal is currently being reviewed by the DoJ. A few analysts believe that Salesforce may have overpaid for Slack, but Slack is delivering strong financials of its own so far. Slack recently reported revenues of more than $250 million, trending at $1 billion revenue run rate with more than 100 customers paying over $1 million in ARR. Besides the financials, Slack will also be able to turbo-charge Salesforce’s social media efforts by helping Salesforce learn Slack’s social skills that have made Slack a very popular tool. Additionally, Slack will also become a fertile ground for Salesforce to deploy its PaaS expertise.

Salesforce already has a very successful PaaS strategy. As I have said earlier, it is a PaaS leader that has figured out how the model works. Salesforce has over 4,000 apps with more than 8.4 million installs and a wide array of over a thousand developers and consultants building apps on the platform. Meanwhile Slack has over 2,200 apps and integrations across several verticals on its platform. Developers use its platform to automate workflows and customize Slack apps. Startups use the Slack platform to drive user engagement and adoption. Over 115 private venture-backed startups offer integrations with the Slack platform across categories like Analytics, Team Culture, Sales, Finance, and Security.

Salesforce has figured out that the right platform and marketplace strategy can help build a sustainable ecosystem that is beneficial to both Salesforce and the developers. A strong developer ecosystem, education, app marketplace, accelerator, and venture-fund are the components of a compelling PaaS strategy. Under Salesforce’s aegis, Slack’s platform is sure to soar. You can read more about my views on PaaS here.

Overall, this was another stellar quarter and year for Salesforce. Among key metrics, current remaining performance obligations grew 20% to $18 billion, compared with the market’s estimates of a 16% growth or $17.4 billion. Billings also grew 22% to $10.6 billion, ahead of the market’s consensus of $10.2 billion. Acumen will add the capability to execute against government spending, thus continuing to deliver growth.

Meanwhile, Salesforce’s stock is trading at $217.54 with a market capitalization of $199.64 billion. It had touched a record high of $284.50 in August last year. The stock fell to a 52-week low of $115.29 in March last year due to the global crisis.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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