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Panos Mourdoukoutas
Panos Mourdoukoutas
Articles (44) 

Salesforce's Acquisition of Slack Could Work in Favor of Microsoft

The deal could be good for Microsoft in the long run by bringing more users to Dynamics 365

December 02, 2020 | About:

Salesforce.com Inc.'s (NYSE:CRM) acquisition of Slack Technologies Inc. (NYSE:WORK) could be good for Microsoft Corp. (NASDAQ:MSFT) in the long run by bringing more users to Microsoft Dynamics 365.

That's according to Mike Hicks, chief marketing officer at Beezy.

"In the long run, this acquisition could ultimately work in favor of Microsoft, particularly in regards to Microsoft Dynamics 365," he said. "The capabilities of Dynamics have come a long way in terms of catching up to Salesforce functionality, and Dynamics comes with better integration capabilities with Microsoft Teams and the rest of the Office 365 portfolio. Anyone who was on the fence about Dynamics previously might see this as the push they need."

Still, the $27.7 billion deal is a bold move in the ongoing race between Salesforce and Microsoft, according to Dustin Grosse, chief marketing and strategy officer at Nintex. He thinks Slack will help Salesforce expand its leadership beyond customer relationship management into the emerging market of collaboration that appeals to a broad clientele of sellers, marketers, developers and other departments across many organizations.

Something Salesforce needs to maintain is its brisk growth rate. Over the past three years, the company's sales grew at a rate of 18.6%, close to one-fifth of Slack's, but ahead of Microsoft's.

CRM

WORK

MSFT

3-year Revenue Growth (%)

18.6

98.1

14.7

3-year EBITDA Growth (%)

33.4

-72.4

19.5

Current Operating Margin (%)

0.35

-43

38.17

Average Annual Total Return (2010-2020)(%)

21.74

3.72

26.50

Market Price

$246.82

$40.7

$216.21

Intrinsic Value

$193.14

--

$158.75

Company

ROIC

WACC

ROIC-WACC (Economic profit)

CRM

4.40%

8.38%

-3.98%

WORK

-28.65%

--

--

MSFT

28.10%

5.87%

22.23%

Tzachi Levy, senior vice president of product and engineering at Vidyo, likes Salesforce's move on Slack. "This move puts Salesforce in a unique position, placing CRM in the middle of the unified collaboration world," he said. Levy sees the merger of CRM and collaboration software as a major force of change in the way organizations communicate both internally and externally.

Still, David Holme, executive chairman at Exigent, thinks Salesforce is far behind Microsoft in the collaboration space, so its expensive acquisition of Slack is doomed to fail.

"Salesforces is a Heath Robinson machine with no meaningful integrated strategy; Microsoft is likely chuckling at the absurd prices being paid, and targets will be donning their party dresses," he said.

While it's still unclear how the acquisition will play out, one thing is clear: Wall Street will be closely watching the revenue growth of both Microsoft and Salesforce to figure out which one is better positioned to deliver superior investment returns.

Disclosure: I own shares of Salesforce and Microsoft.

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About the author:

Panos Mourdoukoutas
I’m a Professor of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Forbes, Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance.

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