Looking at Salesforce vs SAP present & future

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Tom Paine

I’ve been wondering for some time whether Salesforce’s (NYSE: CRM) growth would falter, but it really hasn’t yet in a big way. Though a string of acquisitions have had a dilutive effect, investors have rewarded it with a growth premium in terms of a higher Price to Earnings (PE) ratio. Its somewhat akin to what happened last year when Netflix briefly surpassed Comcast in market value. Such a PE advantage, though tenuous, gives Salesforce a strong currency for acquiring others.

Salesforce may be on the verge of becoming a more powerful enterprise player than the possibly capital-constrained SAP, under pressure from an activist investor, in spite of its considerably smaller revenue & profit base.

Comparative share prices: Salesforce (light blue) vs SAP (dark blue) Past 5 years

CRM Mkt cap$146.8B
SAP SE Mkt cap$162.4B

In 2018, SAP redesigned & retargeted its CRM, but its way too early to measure how effective that relaunch has been.

SAP CRX ( Qualtrics): The acquisition of Qualtrics opens up an adjacent market to CRM that Salesforce isn’t much of a player in today.

Salesforce could move more into SAP’s space:

Salesforce Options

  • Buying WorkDay would appear financially feasible, though WDAY founders control voting stock (they won’t allow another Peoplesoft). WDAY brings Financial ERP as well as HCM.
  • Continue partnerships or consolidate RootStock & Financial Force (manufacturing & financial ERP)
  • Buy Zoho if available. Threat to cannibalize Salesforce’s own core business, but could be like Microsoft’s Great Plains acquisition

Salesforce acquisition target list leaked in 2016 – What’s happened since

Adobe Mkt cap 134.91B, essentially the same as CRM

LinkedIn . Acquired by MSFT for $26.2 billion

Workday . Mkt Cap $39.9 billion

ServiceNow . Mkt Cap $50.8 billion

Netsuite . Acquired by Oracle for ~$9.3 billion

Tableau Acquired by Salesforce for $15.7 billion

Pegasystems . Mkt Cap $5.7 billion

Qlik Acquired by Thoma Bravo for $3 billion

Veeva . Mkt Cap $21.7 billion

Box . Mkt Cap $2.6 billion; Recent activist stake

Demandware . Acquired by Salesforce for $2.8 billion

Zendesk Mkt Cap $8.6 billion

Marketo Acquired by Adobe for $4.8 billion

Hubspot . Mkt Cap $6.8 billion

Salesforce’s Mulesoft acquisition last year was totally off the chart. SAP owns no equivalent.

Salesforce needs to decide whether to build a strategy around smaller customers, or double down on larger customers.

Salesforce is also likely looking at ways to accelerate its CRX ambitions.

Another possibility is a dead stop to Salesforce’s organic growth, but that seems unlikely given the size and projected growth of the market

Not discounting Oracle at all, but see it more as a hard engineering company, inconsistent in end user applications.

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