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Salesforce (CRM) Buys Slack (WORK), Shares Sell Off

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What difference does the flip of a calendar make? The “vaccine rally” continues onward this Tuesday, with the S&P 500 and the Nasdaq closing at fresh all-time highs. You can say a lot of things about the year 2020, but market underperformance is not one of them. It’s the 27th record close for the S&P, the 46th for the Nasdaq. As Zacks Exec VP Kevin Matras is fond of saying, “These are historic times for the market.” He’s not wrong.

The Nasdaq led the way on the day, +1.28%, followed by the S&P 500 up 1.13%. Then the small-cap Russell 2000 earned 0.84% on the day, with the Dow, held back a bit by down sessions for 3M MMM and CRM, +0.63%. We feel eventually the mindset of market participants will consider whether stocks are doing too much too soon, but for now, everyone feels good looking ahead to an economy unhindered by the coronavirus pandemic.

Speaking of salesforce, the cloud software giant made it official this afternoon: it has agreed to acquire smaller rival Slack for $27.7 billion in cash and stock ($26.79 per share, at 0.0776 shares of CRM for each share of WORK). This is by far the largest acquisition in salesforce’s 20+-year existence, making last year’s purchase of Tableau for $15.3 billion pale in comparison. In face, it is the second-largest software acquisition of all-time, behind IBM’s IBM purchase of Red Hat in 2018 for $34 billion.

Both stocks dropped in after-hour trading on the news, however: investors seem to be puzzled as to the timing of salesforce CEO Marc Benioff’s decision at current valuations; the company is likely going to need to borrow to complete this transaction, which is reported for next fiscal Q2. That said, it creates an enormous enterprise software presence whose immediate rival appears to only be Microsoft MSFT. Slack CEO Stewart Butterfield, who had only brought his company public last year, will stay on to run the Slack business.

Salesforce also reported fiscal Q3 earnings after the bell this afternoon, beating earnings expectations by a full dollar to $1.74 per share, marking a positive surprise of 135%. Revenues of $5.42 billion surpassed the $5.25 billion in the Zacks consensus. Yet the focus remains on the WORK acquisition, and whether CRM’s 50+% growth year to date is worthy of near-term support. For more on CRM’s earnings, click here.

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