Over the course of this pandemic, the novel coronavirus has impacted every American in ways both big and small. Moreover, American professional life has been rudely disrupted over the past year, sending millions to work from home. This dynamic represented a fundamental catalyst for business communications platform Slack (NYSE:WORK). However, the technical narrative for WORK stock has been so far lacking.
Although shares bounced higher since the March doldrums — as corporate America made the sudden pivot to remote operations — Slack’s overall market trajectory has been disappointing relative to other work-from-home plays like Zoom (NASDAQ:ZM). Up until recently, the stock barely moved from its direct listing price of $26. Everything changed, though, thanks to cloud-based consumer relationship management giant Salesforce (NYSE:CRM).
According to the Wall Street Journal, Salesforce is in “advanced talks” to acquire Slack. If plans go through, this will be Salesforce’s biggest acquisition. Not surprisingly, WORK stock responded vigorously to the news, jumping almost 38% on the final session before Thanksgiving.
Though the proposed deal has finally justified stakeholders’ patience with Slack, it’s another issue for Salesforce. After the WSJ report came out, investors penalized CRM stock. Shares eventually closed down over 5% on Nov. 25. While the potential acquisition would allow Salesforce to compete directly with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), there are risks involved. Wedbush analyst Daniel Ives noted the following:
This would be an aggressive move for [Salesforce’s] Benioff & Co. to further expand its cloud enterprise product offering focused on further penetrating its golden installed base with what would be its biggest acquisition [$20-plus billion] ever if Slack ultimately gets acquired. […] This deal would be a major shot across the bow at Microsoft with the company’s Teams offering a direct messaging competitor against Slack that has been a clear hurdle to growth and now would be a two horse race between Microsoft and Salesforce.
So, is this buyout the right move for CRM stock? In many ways, Salesforce has no choice.
WORK Stock Is a Benefactor of Clashing Titans
To understand why Salesforce was willing to take a bold step in acquiring Slack, first investors must appreciate the underlying target platform. Essentially, Slack changed business communications for the better — it introduced dynamism into a staid, inefficient and linear work environment.
If you work in a fast-paced environment, you know very well that email is both a blessing and a curse. Information comes at you when it’s sent, irrespective of the content’s importance. Furthermore, email is dumb in the sense that it offers no separate communication silos.
To address this problem, Slack provides an intuitive mechanism for organized communications and workflows. Further, each “channel” features its own authorizations and documentation, allowing individual operators to be on the same page. The organization and simplicity is what drew initial strong interest in WORK stock.
However, as a stand-alone entity, Slack incurred tremendous difficulties sizing up to Microsoft. Additionally, Microsoft launched its Teams platform which became, according to FT.com, “an effective tool for channelling users to that company’s other applications — including its customer relationship management software, which competes directly with Salesforce’s own core business.”
Hence, the tough situation that Salesforce found itself in. While I’m sure management didn’t care for the hit CRM stock took, it was the necessary cost of staying relevant amid Microsoft’s encroachment.
Should the acquisition go through, “Salesforce could look to use Slack as the ‘front end’ for a more open set of cloud software tools.” Further, “It would connect with services like Salesforce’s own CRM, while also continuing to stitch together widely used applications from other companies.”
An Expensive Road Ahead for CRM Stock
About the only sure thing anyone can say about this deal — assuming it goes through — is that it bailed out stakeholders of WORK stock. Fundamentally, rising Covid-19 cases should have supported the bullish thesis for Slack. Instead, it was one of the more disappointing investments until this recent announcement.
Where it gets tricky is what lies in store for CRM. Along with Microsoft, you have Google and Amazon (NASDAQ:AMZN) looking to dominate the cloud. As Ives notes, “[The Salesforce-Slack deal] would also have a ripple impact for Google and its cloud endeavors and put more pressure on [Google Cloud CEO Thomas] Kurian and GCP to do a collaborative cloud deal over the next 3 to 6 months to keep pace.”
Of course, the novel coronavirus could play a huge role in the viability of software mergers and acquisitions. If the pandemic worsens — or if Covid-19 turns into an endemic — we could see work-from-home measures extended even further. That might justify rich premiums.
Still, the opposite is also true. For now, CRM stock is a name to watch closely, along with an eye on the headlines.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.