Salesforce announced at its investor day last month that it plans to double the company in the next five years, but industry watchers say that growth may be more difficult to reach than expected and is heavily dependent on more large acquisitions like Tableau and MuleSoft.
Growth in Salesforce’s flagship Sales Cloud business has been slowing as the company continues to expand in size.
“While the company has a strong track record of buying and integrating good businesses, for an acquisition to have a material impact on the business at the current run rate, it would have to be large. This opens the door to riskier deals that present greater integration risk,” Rob Oliver, senior research analyst at Baird Equity Research writes.
One big problem with relying on M&A to grow revenue is that it will weigh on margins, analysts say. And Salesforce needs to be careful about over-spending on deals.
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One of Salesforce’s most reliable playbooks— mergers and acquisitions — will be put to the test like never before as the company strives to meet its CEO’s ambitious growth targets, according to analysts.
Marc Benioff, the cloud software giant’s voluble founder, recently declared that Salesforce will generate $35 billion in revenue by its fiscal year 2024, roughly double the current level.
The feat would make “us the fastest enterprise software company to reach that milestone,” Benioff said on an earnings call with investors Tuesday, re-iterating the target he had set a few weeks earlier at the company’s annual Dreamforce conference.
Analysts say the only realistic way for Salesforce to get there is to buy growth by acquiring other companies. And while that strategy has served Salesforce well for years, the risks will become bigger than ever as the stakes grow higher.
“While the company has a strong track record of buying and integrating good businesses, for an acquisition to have a material impact on the business at the current run rate, it would have to be large. This opens the door to riskier deals that present greater integration risk,” wrote Baird Equity Research analyst Rob Oliver in a note to investors following the company’s earnings results.
With a relatively modest $6.5 billion of cash on its balance sheet, Salesforce needs to be careful how its spends its money.
“If Salesforce does not exhibit spending discipline, over-payment for strategic acquisitions could be dilutive …read more
Source:: Business Insider