Salesforce, Inc. (NYSE: $CRM) is a leading American cloud-based business that offers customer relation management services to its clients. Its CRM tool, used for marketing, sales, support, and analysis, is popular with companies globally. Salesforce offers a convenient means for businesses to utilize cloud technology to connect with customers and partners, and find new customers.
On late Friday, April 12, 2024, a WSJ report revealed that Salesforce was in early talks to acquire Informatica. The shares sunk over 7% the following Monday on the news, here is why.
Salesforce Could Acquire Informatica
Informatica is a major data management platform that helps companies quickly process huge amounts of data. The company has over $1.5 billion in annual revenue and employs over 5000 workers. Informatica has quickly adopted AI, and clients can utilize its AI tools to process vast quantities of data for better insights.
As AI’s role in data management grows, Salesforce is making the necessary changes to better process large amounts of information in the future.
The Launch of Einstein 1 Studio
On March 6, 2024, Salesforce announced the release of Einstein 1 Studio to the public. It is a set of low-code tools allowing developers and admins to customize the Einstein Copilot to seamlessly embed AI across any app for customers and employees.
The rise of AI has changed how new tech is implemented across a company, with users requiring more intuitive tools to work better with AI. With Einstein 1, users can better modify their Einstein Copilot for increased productivity.
Why Salesforce Shares Slumped
Salesforce has been on an acquisition spree in the past two decades, acquiring over 70 companies since 2006. Its strategy has attracted numerous activist investors who want the company to focus on cutting costs and increasing profits. In March, the company was forced to disband a mergers and acquisitions committee to keep activist investors happy.
Informatica shares also experienced a decline, and at the close of trading on Monday, the shares were down 6.5% to $35.98, with a market cap of $10.62B. As such, Salesforce, which has $14.19B in total cash according to its last financial results, could fully fund a deal without diluting shareholder value.
Informatica and Salesforce have not made any official announcements on the progress of any talks. However, Salesforce’s appetite for acquisitions has attracted activist investors in the past. Fear that a renewed proxy battle could derail Salesforce’s focus from its AI ambitions as it works on another major integration. Consequently, it is unsurprising to see jittery investors run from the stock.
Salesforce Stock Performance
At the close of trading on Monday, April 15, 2024, CRM shares were down 7.28% to $272.90. Despite the recent slump, Salesforce shares are up 6.55% YTD and 38.47% over the past 52 weeks, outperforming the SPX, which has gained 21.83% in the same period.
Analysts’ outlook on CRM Shares
According to 38 Wall Street analysts, Salesforce has an overall moderate buy rating. They have set a wide range for the stock, with a high of $380 and a low of $260. Based on the last closing price, the average price target of $338.06 is a 23.88% upside.
Should You Buy CRM Shares?
Analysts forecast growth in Salesforce’s future. However, at the current forward P/E ratio of 28.09, the market has already accounted for most of that future growth in the stock price. The company is banking on its AI tools, including the Einstein Copilot, to propel growth in the AI space. However, it could face stiff competition from Microsoft and other players.
Additionally, as it renews its acquisition efforts, it could become the focus of activist investors once more. However, the company has proven resilient, and it hit a new all-time high in March after growing over 50% in the past three years, despite an onslaught of attack from activist investors for most of the first half of 2023.
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