Salesforce.com: The Tableau Acquisition Is A Game Changer

Summary

• Big data and business intelligence is a rapidly growing industry. On its own, Tableau is among the leading firms in this area and was well-positioned to succeed.
• The acquisition was an all-stock deal, meaning this will have no hit on the cash flow and Salesforce.com's ability to continually grow.
• Salesforce.com's acquisition of Tableau is strategic in nature, the addition of the latter on Salesforce's products would create a product offering that is unmatched.

Introduction

Salesforce.com (NYSE:CRM) recently acquired Tableau (NYSE:DATA) in an all-stock deal valued at roughly $16 billion. Wall Street wasn’t too happy at the announcement of the deal, sending the stock down as much as 8% the day it was announced. Criticisms of the deal are that Salesforce overpaid for Tableau or that maybe Salesforce was stepping way outside its comfort zone. Given that it was an all-stock deal, the acquisition is expected to decrease fiscal 2020 non-GAAP EPS by 37 cents to 39 cents. In 2018, Salesforce earned $1.43 per share on $13.28 billion in revenue, making it clear that the stock is expensive from strictly a P/E ratio perspective.

So why am I so excited about this deal? Basically, the deal is strategic in nature and reminds me of the time Facebook (FB) acquired Instagram. At the time Facebook was heavily criticized for having overpaid. However, Facebook knew the strategic value of Instagram and how it complemented and enhanced its existing services. Now as a stand-alone company, Instagram is valued at $100 billion and returned 100 times its investments. I believe Salesforce’s acquisition of Tableau is poised to do the same.

Strategic Acquisition 101

A deal that is strategic in nature is designed to bring the acquirer capabilities it doesn’t yet have and that will allow it to intensify its own capabilities system. So what exactly is Tableau?

Tableau Software is a computer software company that produces a family of interactive data visualization products focused on business intelligence. Tableau is a self-service analytics platform that empowers people of any skill level to work with data to get rapid insights and make impactful data-driven decisions. Using Tableau you can quickly connect, visualize, and share data, create and publish dashboards and share them seamlessly from PC to iPad.

Prior to the Salesforce acquisition, Tableau was already posting healthy revenue figures and looked to be further expanding with subscription annual recurring revenue at $510.1 million as of March 31, 2019, up 115% year over year. Looking at the broader market, with companies pushing into analytics, Tableau was already poised to be a successful company on its own.

Source: Enlyft

Tableau as a means to round out Salesforce’s product offering

Tableau’s analytics platform will help Salesforce augment its current product offerings, which include tools to help companies with sales, marketing, and customer service. Salesforce can leverage the technology to extend data intelligence and insights for the customers that Salesforce already has. Currently, Salesforce is sitting on a treasure trove of customer and market data. Being able to harness that data to deliver insight is a key concern for every C-suite executive. It is forecasted that revenues from big data are expected to hit $247 billion in 2022.

Source: Statista care of Pcmag

The combination of a leading CRM and a leading data visualization tool will give Salesforce a combined product offering that is unmatched in the market place. Against other competitors such as SAP (SAP) and Oracle (ORCL), the ease of use of Tableau and Salesforce architecture would give it a competitive advantage. The integration of Tableau as a native software, to get data directly from Salesforce fields (either called “opportunities” or “cases”), will give it an advantage over competitors such as Microsoft’s (MSFT) PowerBI which are not directly integrated into the system. That only scratches the surface, imagine what types of synergies and innovations are possible by layering data analytics unto Salesforce’s entire suite of products or the upcoming artificial intelligence tools.

Source: Salesforce Investor day 2018 care of Forbes

We are bringing together the world’s #1 CRM with the #1 analytics platform. Tableau helps people see and understand data, and Salesforce helps people engage and understand customers. It’s truly the best of both worlds for our customers--bringing together two critical platforms that every customer needs to understand their world,” said Marc Benioff, Chairman and co-CEO, Salesforce

Salesforce’s incredible success has always been based on anticipating the needs of our customers and providing them the solutions they need to grow their businesses,” said Keith Block, co-CEO, Salesforce. “Data is the foundation of every digital transformation, and the addition of Tableau will accelerate our ability to deliver customer success by enabling a truly unified and powerful view across all of a customer's data.”

Source: Salesforce press release

Conclusion

Marc Benioff is truly a visionary CEO in the same vein as Steve Jobs, Bill Gates and Mark Zuckerberg. Salesforce wants to hit $60 billion in revenue by 2034. That is still ways off from today, but I can easily see the company continuing its exponential growth in the coming years. Ignore the naysayers who say the Tableau acquisition was too expensive or that Tableau as a company was having operating losses. Salesforce paid the right price, using stock (ensuring no cash flow hit) and this will benefit its product for years to come.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CRM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.