Analyst Note | Dec 02, 2020
Wide-moat Salesforce reported strong results, including meaningful upside to both revenue and non-GAAP EPS, while guidance for the fourth quarter was mixed. Stealing the thunder from fine results was the formal announcement that the company is acquiring Slack, and this dominated the earnings call. We have mixed feelings on the Slack acquisition. Salesforce has done a nice job identifying strategic targets and smoothly integrating both products and operations, so we think they can do the same with Slack, which was characterized as an opportunistic deal. That said, we think the price tag was steep at $28 billion in total and about $46 per share, based on deal terms of $26.79 in cash and 0.0776 shares of Salesforce common stock. This deal price compares with our $20 standalone fair value estimate for Slack.
We are maintaining our fair value estimate of $253 for Salesforce as good organic results are offset by the seemingly modest deleterious impact on shareholder value arising from the Slack acquisition. With the recent pullback, we think Salesforce shares are looking increasingly attractive.
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