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Slack could be the next $10B business for Salesforce: analyst

Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi discuss what Salesforce’s Slack acquisition means for the company with Brent Bracelin ,Piper Sandler Research Analyst.

Video Transcript

MYLES UDLAND: All right, let's turn to the biggest corporate story of the day. That, of course, is Salesforce's acquisition of Slack for $27.7 billion. And joining us now to discuss the deal is Brent Bracelin. He is a research analyst over at Piper Sandler. Brent, thanks for joining the show.

I was looking at your note this morning on the deal. A little shout out to Steve Miller Band there. Take the money and run. When you look at the deal that Slack got as you saw that company's value, I guess from your vantage point a positive one for existing shareholders of the company?

BRENT BRACELIN: Yeah, absolutely. There was a lot of concern that people had as you think about the threat of Microsoft and the success that they had there, and so that's what pressured Slack over the last year. But if I look at other high-growth companies, you know, that are growing over 30%, for example, they also trade at a premium. There's more than a dozen of those that I look at, and they're, on average, trading at about 22 times. Slack was acquired for about 19.4 times.

So these are very high multiples. That's why you're seeing the reaction in Salesforce shares today. It is dilutive. It is the highest premium. It's the largest deal they've ever done, and it's actually at the highest multiple that they've ever paid. And so that's the reaction you're seeing in Salesforce today.

But, you know, this is a company that has-- the Salesforce-Slack combo has lots of potential. It just comes with a very big sticker shock here initially at close to $20 billion.

JULIE HYMAN: Brent, it's Julie here. I loved your-- the title of your note about this deal, "Hungry, Hungry Cloud Hippo" in reference to Salesforce. And as it swallows up Slack at that premium valuation, I guess then the bottom line is is it worth it? Will it be worth it? You know, when you look into your crystal ball about what this company is going to look like a year, three years, five years down the line, is this going to look like a smart acquisition?

BRENT BRACELIN: Yeah, I think initially the debate is going to be around Slack as a collaboration tool and Salesforce moving into collaboration to compete against Microsoft. I actually think it's bigger than that. I think this has the potential to really be an automation layer where you now start to automate and become a new engagement layer for all of those Salesforce applications, and it can be much more than just collaboration.

So could it be worth it? Looking out, there's 1.25 billion knowledge workers. You know, Slack has the potential to be the next $10 billion business for Salesforce, so that's the potential. Now, can they realize that potential? That's the debate. But certainly, again, lots of potential here. This could be the next $10 billion segment for Salesforce. It's going to take, you know, 8 to 10 years to get there, but certainly that's the type of potential and why Salesforce willing to pay what they did to get access to that raw potential.

BRIAN SOZZI: Brent, does this deal help Slack get closer to its goal of killing email once and for all? And then secondarily, what's the next move here by Microsoft? How do they respond?

BRENT BRACELIN: Listen, I think Microsoft today, they're a leader in those productivity-application space. You know, I think it's been very clear Microsoft has an appetite to expand beyond that middle-office space, really into business applications. So there's a lot of untapped ground that Microsoft can do. They have less than 5% market share in front-office applications. They have less than 5% market share in back-office applications. Again, really strong in middle-office employee-productivity tools, but that's where we see Microsoft really look to expand their footprint. They'd likely have to do that through acquisition as well.

But, you know, Microsoft's a dominant player in middle office. Don't expect them to do much or react much. They have a great, great technology. They have a great product. They have a great presence. So I don't think they're going to react, nor do I think they need to react to the Salesforce-Slack deal. But they have appetite to do a lot more in apps, and so look for Microsoft to be much more active in the application space.

MYLES UDLAND: And, Brent, I'd love to ask you about a company you mentioned in the note on Slack, Asana. ASAN is the ticker there. Recent IPO entrant into the market. Where do they sit in this stack, I guess, of all these integrational sort of SaaS plays? And is this a company that you think will certainly, I guess, fill that void, maybe, in a portfolio with Slack now a part of Salesforce?

BRENT BRACELIN: Yeah, I mean, so we actually recently upgraded Asana this morning based on its position as being agnostic where they actually are in an orchestration layer. Think of it like a to-do list that sits on top of Zoom, that sits on top of Slack, Salesforce now. It sits on top of Microsoft Teams.

And so this is a company that is really orchestrating digital work, you know, and has tight integrations with all of these messaging and video-collaboration platforms. So we think it could be a very-- it's a small company today. They could get to a $4 billion business if they basically take about 2% market share.

So it's not going to be-- take a lot for this company to kind of become a much bigger company over time, but it's a new DPO. They did a direct listing. The stock has been kind of under pressure. We've seen some VC selling since the company has come out. But we think it could be a sleeper story for 2021.

MYLES UDLAND: All right, Brent Bracelin, analyst with Piper Sandler. Brent, great to get your thoughts this morning. Thanks for joining the show.