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Salesforce and Slack Are Going After Microsoft

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Business software maker Salesforce.com (NYSE: CRM) is buying work-chat service Slack Technologies (NYSE: WORK) for $27.7 billion in a deal aimed at giving the two companies a better shot at competing against longtime industry powerhouse Microsoft Corporation (NASDAQ: MSFT). The acquisition announced Tuesday is by far the largest in the 21-year history of the CRM giant.

Fiscal Q3 earnings

Salesforce generated $5.42 billion in revenue, increasing 20% from the year-ago period and resulting in $1.08 billion in net income and earnings per share of $1.15. The figures were stronger than analyst estimates of $0.75 per share on revenues of $5.25 billion.

Diversification

Salesforce has been building on its success in recent years to diversify into other fields, largely thanks to its stock whose value multiplied almost seven times over a decade. Slack is part of a series of acquisitions that included its previous largest purchase of data analytics specialist Tableau Software last year that amounted to $15.7 billion. But Microsoft has been threatening Salesforce's main products that aim to assist companies in managing their customer relationships. Salesforce also tried to buy LinkedIn in 2016 before Microsoft snatched the professional social media network for more than $26 billion.

Slack Now Has A Shot Against Microsoft Teams

Despite its services being increasingly used by companies and even governments who are looking for safer alternatives to emails, Slack's stock hasn't risen much since the company went public about a year and a half ago. But its investors will now be rewarded for their patience. It's now up to Salesforce to prove with its leadership that this huge investment will help boost the company's growth.

Guidance

Salesforce expects Q4 fiscal 2021 revenues to come in the range between $5.665 billion and $5.675 billion. This figure equates to growth of approximately 17% compared to the same quarter of the prior fiscal year. The company also anticipates that it will grow around 17% in its undergoing quarter, namely Q1 of its fiscal 2022. As for the full fiscal 2022, Salesforce a growth rate of 21%.

Salesforce has to prove its leadership

Salesforce was one of the first movers when it came to selling software as a subscription-based service that could be used on any internet-connected device, eliminating the cumbersome installation process that needed to be repeated on each computer. This service has turned into a gold mine for long-time software makers and is an industry standard today.

But Microsoft has caught up with its Office 365 and Teams messaging app that offers pretty much the same function as Slack. In July, Slack even filed a complaint in the European Union accusing Microsoft of illegally bundling Teams into Office 365 in a way that blocks its removal, trapping customers who may want to use Slack. Although it is debatable whether the competition can ever be fair in this particular playing field, with this development, Slack and Salesforce at least have better odds by joining forces. Yet, after two anticipated quarters of 17% growth coming up, knowing that the company will accelerate up to 21% growth for the next fiscal year, investors are wondering was that really worth $27.7 billion? Hopefully, there'll be more to this acquisition than a 4% fiscal year growth.

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