We received reports over the U.S. Thanksgiving holiday that Salesforce ($CRM) is in talks to buy Slack ($WORK). With Slack’s market cap at over $23 billion, it would be one of the biggest software acquisitions ever.
And $WORK has rallied over 45% to $44 per share on the news, amid a rough year being down 14% from its June peak.
- I have been warning us against the stock since the summer because of intense “office chat” competition especially from Microsoft Teams
- Microsoft includes Teams with Office 365 and has grown it from 75 million daily active users in April to 115 million now
Being under Salesforce would give Slack a better opportunity to compete with Teams.
- Slack could be included as an add-on in Salesforce enterprise deployments.
- Salesforce also bought Tableau, which is data visualization software that competes against Microsoft Power BI.
My opinion is that, unless you are planning to profit from Salesforce buying Slack for higher than its current stock price (a strategy called merger arbitrage), $WORK stock still doesn’t look especially attractive standalone.
- $WORK is trading for 23.3x forward gross profit, whereas the ROIC Big Board is concentrated on high growth companies with better competitive dynamics at <20x forward gross profit.
But, this is probably a good long-term strategy for Salesforce ($CRM) and its stock.
- Salesforce’s core product may not have 20%+ growth anymore, but tacking on complimentary enterprise solutions like Tableau and Slack could provide growth synergies.
- It looks like Salesforce wants there to be a duopoly in Enterprise work software with Microsoft. Microsoft Office is a base layer of doing business and Salesforce is the dominant tool for sales teams. After that, they will compete on chat, data visualization, and other workflow tools.