It is no secret that salesforce.com (NYSE:CRM) is an acquisitive company. While there is much speculation on what companies and services Salesforce might acquire next, there are at least four reasons to believe that Zuora (NYSE:ZUO) should be on the shortlist of targets.
1. Salesforce's CEO is already a large Zuora shareholder
One of the strongest arguments that Salesforce could be interested in acquiring Zuora is that there is already a strong connection between the two companies. Zuora's founder and CEO, Tien Tzuo, was employee No. 11 at Salesforce and spent nine years at the company, eventually rising to the role of Chief Strategy Officer.
When Tien Tzuo was ready to start his own company, Salesforce's CEO Mark Benioff gave Tzuo his blessing. Benioff personally invested in a $6.5 million "A" round of funding for Zuora pre-IPO as a sign of good faith. That investment paid off for Benioff in a big way. Today, Marc Benioff's undisclosed initial investment is worth more than $40 million, making him one of Zuora's top 10 shareholders with 2.7% of the total shares outstanding.
Granted, Mark Benioff's personal investment is not the same thing as Salesforce itself owning a piece of Zuora. However, Benioff is the chief decisionmaker when it comes to making acquisitions for Salesforce. The fact that Benioff is well aware of Zuora and believes in the company enough to invest in it could lead to a discussion of an acquisition down the road.
2. Zuora would extend Salesforce's enterprise cloud software services
Taking a step back, it helps to explain what Zuora's software product does to better understand why it could be a good fit for Salesforce.
Zuora is an enterprise software platform that helps subscription-based companies manage and bill their clients. For example, an online video streaming company could theoretically use Zuora's platform to keep track of subscribers and handle billing so that the streaming company can focus on delivering the product, effectively outsourcing some back-office functions.
Zuora's product addresses a market need that was not being met by pre-existing enterprise resource or customer relationship software, such as Salesforce. In fact, Mr. Tzuo got the idea to start Zuora after asking Salesforce customers what problems they still needed help with. The company was able to find product-market fit and has quickly grown its client base.
Salesforce is currently not addressing the market for billing software or subscription management; therefore, acquiring Zuora's product suite would be highly complementary. Acquiring a fast-growing company like Zuora would also boost Salesforce's overall growth rate.
3. Zuora's product natively works within Salesforce's software
As a result of the connection between Zuora's founder and Salesforce, the company made sure its product was compatible with Salesforce's software. But Zuora is more than just compatible with Salesforce; it was built specifically to work in coordination with Salesforce's customer relationship management (CRM) system to beef up what clients can do with their customer data if they use both Zuora and Salesforce.
In fact, Zuora has heavily noted its synergy with Salesforce software in its marketing materials. Zuora has noted that its unique ability to run natively in salesforce.com's application does a better job of weaving together functionality and leveraging a company's CRM data.
Close product alignment is another critical factor that could make Zuora an attractive acquisition target for Salesforce.
4. Zuora's stock is on sale
Despite Zuora's interesting set of products and fast revenue growth rate, the company's stock price hasn't performed well since its 2018 IPO. Zuora went public in April 2018 at $14 per share. The stock initially moved higher, but has struggled over the last year as investors have discarded the stocks of many recent tech IPOs.
Salesforce may want to jump on the opportunity to acquire Zuora, given its depressed share price.
Very possible but not guaranteed
Obviously, it is extremely difficult, if not impossible, to predict which companies will be acquired. However, there are some good reasons to think that Zuora could make an interesting target for Salesforce. At the end of the day, Zuora would need to be a willing seller, and it is not clear the founder would be willing to sell his company near the current stock price.