As Twitter (NYSE:TWTR) buyout theories continue to circulate, CRM industry leader Salesforce.com (NYSE:CRM) is another company rumored to be pursuing a deal. This is an interesting development for Salesforce.com shareholders as just a few months ago, the company was unsuccessful in acquiring LinkedIn after losing a bidding war with Microsoft for the professional networking platform.
In the segment from Industry Focus: Technology, Motley Fool analysts Dylan Lewis and David Kretzmann discuss the pros and cons of a successful deal for Salesforce. Will the company be able to integrate and finance an approximately $20 billion acquisition?
A full transcript follows the video.
This podcast was recorded on Sep. 23, 2016.
Dylan Lewis: Flipping it over to one that I'm a little bit more skeptical of, Salesforce. Following the rumors, and the early reports from CNBC, Salesforce's chief digital evangelist tweeted this out: "Why Twitter? One, personal learning network. Two, the best real-time content-rich news. Three, democratize intelligence. Four, a great place to promote others."
David Kretzmann: That sounds like an acquisition thesis right there.
Lewis: Yeah, it does. If there are rumors about your company being interested in another company, and then you publicly tweet about how great that company is, that's like the equivalent of someone in grade school thinking you have a crush on someone, and then liking all their pictures on Facebook. You know?
Kretzmann: It's damning evidence.
Lewis: It's like, we clearly know that you're interested. I know he backed off a little bit later in the day. I think he said these were just his personal beliefs, they're a company that he's liked for a very long time. But, there's a lot of legitimacy, it appears, to Salesforce being in the mix.
Kretzmann: Yeah. And it's a little bit surprising to me as well, because Salesforce also was trying to outbid Microsoft's bid for LinkedIn. So, Salesforce was willing to pay more than $26 billion for LinkedIn.
Lewis: And that $26 billion was a number that a lot of people took a double-take at. That was a hefty premium that Microsoft paid for LinkedIn.
Kretzmann: Yeah, and Salesforce is about a $50 billion company. They have about $1.1 billion in cash, $2.5 billion in debt. So, they have a net debt position on the balance sheet of $1.3 billion. They are not flushed with cash to make a $25 billion to $30 billion acquisition in the case of LinkedIn or Twitter. So, I wonder, are they just trying to grow for the sake of growing? This is a company that's still doing very well in the space of cloud services for the enterprise. They're still growing organically, in a lot of cases, well above 25% every quarter. So, it makes me wonder where management's head is at, here, what their strategy is, because if they're just trying to make a big acquisition for reasons, to me, that seem a little bit arbitrary, it's hard for me to see a direct connection between Salesforce and Twitter, how they would integrate it into their services to the point where you could justify such a massive acquisition. So, I don't know, it makes me definitely do a double-take on Salesforce and how confident I am in that business as an investment.
Lewis: Yeah. You look at them over the last six quarters, top-line growth of 20% each quarter. Going back to Q1 of 2015, 23% year-over-year growth. Most recent quarter, they're at 25% year-over-year growth. That growth is not decelerating. If anything, it's bumped up a little bit. And, they've just seemed to flip on that switch of consistent profitability. It is interesting. And, last year, they upped 2017 full-year guidance. So, they have a business that's kind of humming along. Everything seems to be going well for them. I saw a quote, I believe it was from Marc Benioff, CEO. He told Recode, "It's the season of M&A." Like, he is very caught up in this idea of making an acquisition, it seems. With LinkedIn, I think it made little bit more sense. They were interested in some of the recruiting-side products.
Kretzmann: More of the enterprise stuff that ties right into what Salesforce is doing, yeah.
Lewis: With Twitter, it's tougher to see. It's just kind of a head-scratcher.
David Kretzmann owns shares of Facebook, LinkedIn, and Twitter. Dylan Lewis has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool owns shares of LinkedIn and Microsoft. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.