Why Are Tech Stocks Slack And Salesforce Trending?

Summary

• Salesforce is reportedly set to acquire Slack Technologies. This transaction could beat Facebook’s US$ 19-billion acquisition of WhatsApp in 2014.
• On the acquisition news, stocks of Slack soared nearly 38 per cent on November 25.
• Slack stocks have returned about 83 per cent growth year-to-date (YTD).
• Salesforce stocks have advanced nearly 52 per cent this year.

Salesforce.com Inc (NYSE:CRM, CRM:US), an American cloud-based software company, is in the final stages of acquiring communications platform Slack Technologies Inc (NYSE:WORK, WORK:US), as per media reports. In the wake of this news, stocks of Slack Technologies shot up nearly 38 per cent on Wednesday, November 25.

The two tech companies are reportedly expected to reach a final agreement by the time Salesforce reports its third quarter earnings on December 1, 2020. Slack’s current market value stands at approximately US$ 19.66 billion at the time of writing this story. This could be one of the largest acquisitions in the tech landscape, possibly beating Facebook Inc’s US$ 19-billion acquisition of WhatsApp in 2014. Let us take a look at the stock and financial performances of these two software companies.

Slack Technologies Inc (NYSE:WORK)

Current Stock Price: US$ 40.7

Silicon Valley-based Slack Technologies manages a software-as-a-service (SaaS) platform that offers a channel-based messaging platform to small and medium-sized businesses. The company claims to have more than 12 million daily active users in over 150 countries.

Slack Technologies Stock Performance

Stocks of Slack Technologies plunged sharply during to the coronavirus pandemic-led market collapse. However, the scrips have since climbed about 57 per cent in the last eight months.

Slack stocks have returned about 83 per cent profit year-to-date (YTD). In the month of November, the shares soared over 59 per cent.

Slack Technologies’ YTD price chart (Source: EODHD/Others, Thomson Reuters)

The software stock’s 10-day average trading volume is 22.8 million, while its 30-day average share movement volume stands at 14.6 million.

Its price-to-book (P/B) ratio is 27.315, while its current price-to-cash flow (P/CF) ratio is 667.3 and its debt-to-equity (D/E) ratio is 1, as per the data available on the TMX website.

Slack Financial Highlights

In the second quarter of the fiscal year 2021, Slack Technologies reported a total revenue of US$ 215.9 million, a 49 per cent surge year-over-year (YoY). The company registered calculated billings of US$ 218.2 million in the latest year, a rise of 25 per cent YoY.

The communication company posted a GAAP (Generally Accepted Accounting Principles) gross profit of US$ 187.5 million in Q2 FY21, up from US$ 113.9 million in Q2 FY20.

Slack’s net cash provided by operations stood at US$ 14.5 million in Q2 FY21, seven per cent of the total revenue, as compared to US$ 0.3 million of cash used in operations in Q2 FY20.

Its GAAP operating loss was US$ 68.6 million in Q2 FY21, as compared to a US$ 363.7 million loss in Q2 FY20. The company finished the second quarter of FY21 with 87 paid clients paying over US$ 1 million annually, up 78 per cent YoY.

Slack is expected to release its Q3 FY21 earnings on December 9.

Salesforce.com Inc. (NYSE:CRM)

Current Stock Price: US$ 246.82

Salesforce.com offers enterprise cloud-based solutions, including Sales Cloud, the company's core customer relationship management software-as-a-service (SaaS) product. Salesforce.com also provides Marketing Cloud for digital marketing operations, the Salesforce platform, and other data integration solutions.

Back in August, the company announced plans to downsize its workforce in a move to streamline business.

Salesforce Stock Performance

Following the news of it purchasing Slack, stocks of Salesforce declined by over five per cent on November 25.

Since tumbling during the pandemic-led market meltdown in March, the software stock climbed almost 68 per cent in the last eight months. Salesforce scrips gained nearly 52 per cent year-to-date (YTD). In November, the stock increased by over six per cent.

Slack’s 10-day average stock trading volume stands at 8 million, while its 30-day average share volume is 5.8 million. Its current market cap stands at US$ 224.60 billion as of November 25.

The large-cap stock offers a positive return on equity (ROE) of 8.51 per cent and a return on assets of 5.2 per cent. Its price-to-book (P/B) ratio is 5.843, current price-to-cash flow (P/CF) ratio is 56.4 and its debt-to-equity (D/E) ratio is 0.15. Its current earnings per share (EPS) is US$ 2.54, as per the data available on the TMX website.

Salesforce Financial Highlights

Salesforce generated a revenue of US$ 5.15 billion in the second quarter of fiscal 2021, a growth of 29 per cent year-over-year. Its subscription and support revenues stood at US$ 4.84 billion in the latest quarter.

The company posted GAAP diluted earnings per share of US$ 2.85 in Q2 FY21. Its cash earned from operations amounted to US$ 0.43 billion in the latest quarter, down two per cent YoY. Salesforce’s total cash, cash equivalents, and marketable securities stood at US$ 9.28 billion at the end of Q2 FY21.

Salesforce.com Inc is likely to announce its Q3 FY21 results on December 1.