Wow, what a Monday to wake up to.
Before the open on Monday, investors also got wind of Salesforce (NYSE:CRM) gobbling up Tableau Software (NYSE:DATA) in a $15.7 billion move. The acquisition sent DATA stock soaring more than 35%, with CRM stock down 5% on the news.
The deal is an all-stock transaction that will see each share of Tableau exchanged for 1.103 shares of CRM stock. It’s expected to close by the end of Salesforce’s fiscal third quarter, which is Oct. 31.
It’s funny because DATA stock got a nice boost on Friday, jumping 6%, following an analyst upgrade after Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) said it will acquire Looker for $2.6 billion. The analysts said it shows the value of modern businesses like Tableau.
I guess they were right.
Tableau is seeing big-time growth this year. Analysts expect revenue to grow almost 40% to $1.37 billion. Earnings expectations call for monstrous growth, too, going from a 30-cent-per-share loss in 2018 to profit of $1.72 per share in 2019.
Still, forking up almost $16 billion is no small sum, valuing DATA stock at about 11.5 times sales. Salesforce management says the deal will add $350 million to $400 million to its fiscal 2020 revenue (current year). However, it will decrease its non-GAAP operating margin by 75 basis points and hit its earnings by 37 to 39 cents per share.
Tableau will help drive growth for Salesforce and boost its customer services offerings. But considering the all-stock nature of the deal and the size — remember, CRM is a $125 billion company — it’s no surprise investors are selling Salesforce shares on the day.
After all, it will dilute current shareholders. Keep in mind, Tableau Software has about $800 million in cash and short-term investments when netting out its debt. While it lost $77 million last year and cash flows took a step back, it is still operating and free cash flow positive.
From the press release:
“We are bringing together the world’s #1 CRM with the #1 analytics platform. Tableau helps people see and understand data, and Salesforce helps people engage and understand customers. It’s truly the best of both worlds for our customers–bringing together two critical platforms that every customer needs to understand their world,” said Marc Benioff, Chairman and co-CEO, Salesforce.
Trading CRM Stock
Click to Enlarge As you can see in the adjacent chart, the DATA stock price has been pretty sleepy over the past year. Due to that lull, and the size of this deal, it’s understandable why some CRM stock investors are taking a step back. It comes at a big premium to Friday’s close and shares are currently ~23% above Tableau’s prior 52-week highs.
Remember, because it’s all-stock deal, the price of the stock and value of the deal will be tied to how CRM stock trades.
So how does Salesforce stock look?
Click to Enlarge Last week was a busy one for CRM shareholders. First, shares collapsed through range support and the 200-day moving average, only to rebound sharply a day later ahead of earnings.
Then, earnings propelled Salesforce stock back above range support. It also fueled the move over short-term downtrend resistance (blue line), as well as the 20- and 50-day moving averages.
With the news of the deal, CRM stock is now resting right on range support and the backside of prior downtrend resistance.
Apologies for the terminology blitz, but in other words, this area should hold as support. If it does, it increases the odds of a rebound back to the $163 post-earnings highs.
If that’s the case, a test of range resistance near $167 could be in the cards. Should current levels fail as support, it will bring up a test of the 200-day moving average. If that fails, then the 38.2% retracement near $147 will be on deck, as will last week’s lows. Just below all that is the 50% retracement near $140.50.