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Dow Jones Misses Out on Massive Salesforce Rally; Cisco Makes Videoconferencing Acquisition

By Timothy Green – Updated Aug 26, 2020 at 1:24PM

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Salesforce is soaring less than a week before it will be added to the Dow, and Cisco is looking to improve video meetings for its customers.

Tech stocks, led by Salesforce.com (CRM -2.02%), powered the stock market higher on Wednesday. While the Nasdaq Composite and S&P 500 posted solid gains, the Dow Jones Industrial Average (^DJI -1.71%) lagged far behind. The Dow was up just 0.1% at 1:40 p.m. EDT today.

Salesforce isn't part of the Dow yet, so the massive rally that played out following the software company's second-quarter report didn't help the index. Meanwhile, shares of Cisco Systems (CSCO -1.41%) managed a modest gain following an acquisition that will help the company improve its videoconferencing.

A rising stock chart.

Image source: Getty Images.

Salesforce stock soars after earnings

Software-as-a-service provider Salesforce won't be part of the Dow until Aug. 31, when changes to the index made in response to Apple's stock split go into effect. The Dow missed out on an epic rally for Salesforce on Wednesday that was driven by a solid earnings report and a guidance bump. The stock was up close to 27% by early afternoon.

Salesforce's total revenue rose 29% year over year to $5.15 billion, surpassing the average analyst estimate by $200 million. Adjusted earnings per share were $1.44, up from $0.66 in the prior-year period and $0.77 higher than analysts were expecting.

"It's humbling to have had one of the best quarters in Salesforce's history against the backdrop of multiple crises seriously affecting our communities around the world," said CEO Marc Benioff.

Salesforce now expects to produce revenue between $20.7 billion and $20.8 billion for the full fiscal year, along with adjusted EPS between $3.72 and $3.74. The company had lowered its full-year outlook in May due to the impact of the pandemic on its first-quarter results. That lowered guidance called for revenue of $20 billion and adjusted EPS between $2.93 and $2.95.

Analysts were quick to praise Salesforce's results on Wednesday. Canaccord Genuity boosted its price target from $200 to $270, Morgan Stanley raised its price target from $195 to $275; and Jefferies lifted its target from $235 to $285.

Including Wednesday's rally, shares of Salesforce are now up nearly 70% year to date.

Cisco makes video meetings acquisition

While Zoom Video Communications gets most of the attention in the videoconferencing market, Cisco is a big player as well. The company's WebEx platform has thrived during the pandemic, delivering double-digit growth in the latest quarter as most of Cisco's other business declined.

With video calls and meetings quickly becoming the norm, Cisco needs to make sure it's providing the best user experience to effectively compete against Zoom and other alternatives. On Tuesday, the company announced an acquisition aimed at solving an annoying problem related to video calls.

Cisco has agreed to acquire BabbleLabs, a privately held company that uses artificial intelligence to identify and remove unwanted background noise in video calls in real time. Cisco found through a survey that nearly all workers who were questioned say they experienced frustrations from distractions during video meetings, with one of the top sources of frustrations being background noise.

Cisco will integrate BabbleLabs technology across its Collaboration portfolio, focusing first on bringing the functionality to WebEx. Notably, noise removal is processed fully on the client side, eliminating some security and privacy issues. The deal is expected to close in the first quarter of Cisco's fiscal 2021.

Cisco stock was up about 0.2% by early afternoon. Shares of the networking hardware giant are still down sharply since the company reported its fiscal fourth-quarter results earlier this month.

Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Apple, Salesforce.com, and Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$40.00 (-1.41%) $0.57
Salesforce, Inc. Stock Quote
Salesforce, Inc.
CRM
$143.84 (-2.02%) $-2.97
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$28,725.51 (-1.71%) $-500.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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