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salesforce to Buy Salesforce.org, Updates FY 2020 Guidance

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salesforce.com (CRM - Free Report) recently announced that it is set to acquire the “independent nonprofit social enterprise”, Salesforce.org, for $300 million. This move is expected to help the company expand its presence in the market of education and nonprofit software.

Reportedly, salesforce looks to extend its philanthropic model by “continuing to provide free and highly discounted software to nonprofits and education institutions around the world and investing in local communities through employee volunteering, strategic grants and matching employee giving up to $5,000 per employee annually.”

With this deal, the new nonprofit and education vertical will be responsible for the development of Nonprofit Cloud, Education Cloud and Philanthropy Cloud vertical applications. The transaction is expected to close in the second quarter of fiscal 2020 or the third quarter of fiscal 2020.

Financial Impact

The consolidation is expected to boost salesforce’s fiscal 2020 revenues by $150-$200 million. The company had earlier predicted revenues for fiscal 2020 between $15.95 billion and $16.05 billion, marking 20-21% growth year over year.

Reportedly, salesforce.org’s revenues grossed $250 million in 2018 but its operating margin was low.

As a result, salesforce expects the deal to hurt profitability in fiscal 2020, which is likely to raise investors’ concerns. salesforce now anticipates non-GAAP earnings in the range of $2.54-$2.56 per share, down from $2.74-$2.76, envisioned earlier.

However, salesforce estimates to expand margins eventually. Although the company promised to continue providing products for free or at a discounted price to non-profit customers, it might achieve profit-margin growth by increasing its prices at last. This strategy, if pursued, is likely to put pressure on the organization’s low-budget customer base.

Rising Initiatives of Salesforce.org Bode Well

In January 2019, Salesforce.org acquired roundCorner technology, a provider of technology solutions to enterprise nonprofit organizations, higher education institutions and foundations. The acquisition is expected to drive innovation and leave a positive impact on Salesforce.org’s community by extending the power of Nonprofit Cloud, Education Cloud and Philanthropy Cloud.

Last September, Salesforce.org, announced that new upgrades have been added to its Education Cloud Platform. This is aimed at connecting the total education lifecycle and personalizing student engagement with a set of new tools and advisors.

The new advancements in the Education Cloud include Salesforce Advisor Link 2.0 and the new Higher Education Data Architecture capabilities including the new K-12 (Kindergarten to 12th grade) education data architecture.

The Education Cloud was launched by the company last March, keeping in mind the shift in student demographics toward more non-traditional paths to education, such as adult learners and part-time students among others. The cloud was introduced to aid education institutions in grooming and training students with innovative tools and offerings.

Zacks Rank and Stocks to Consider

Currently, salesforce has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Computer and Technology sector are MeetMe, Inc. (MEET - Free Report) , Cadence Design Systems, Inc. (CDNS - Free Report) and Alteryx, Inc. (AYX - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for MeetMe, Cadence and Alteryx is projected at 20%, 12% and 15.4%, respectively.

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