Wall Street wasn't expecting much from Salesforce earnings, but its results and its $15.7 billion Tableau acquisition proved them wrong
Melia Robinson/Business InsiderSalesforce co-CEO Marc Benioff
- Analysts say Salesforce's stock had been slowing down, but Salesforce brought good news when it announced earnings.
- Analysts are optimistic about Salesforce's $15.7 billion acquisition of Tableau.
- They say that although Salesforce's organic growth is slowing down, its acquisitions will diversify it product base.
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Before Salesforce announced earnings this week, analysts tell Business Insider that Wall Street was getting nervous about its core business.
Its stock price has been languishing in recent months, taking a big hit back in May as the Salesforce platform itself faced a 15-hour outage. But analysts say that Salesforce's better-than-expected earnings report on Thursday, in which it raised its full-year revenue guidance to $16.9 billion, are helping put those fears to rest.
Read more: Salesforce's stock is up 7% after beating Wall Street's expectations
"The market was watching with anticipation as Salesforce stock hadn't performed quite as well," Daniel Elman, an analyst at Nucleus Research, told Business Insider. "People weren't expecting high performance."
Plus, investors were nervous about Salesforce's $15.7 billion acquisition of data analytics company Tableau, which closed earlier this month. However, Salesforce co-CEO and chairman Marc Benioff cited the Tableau acquisition for one reason it raised its guidance.
Tableau will be a 'really big boost'
Elman says that organic growth for Salesforce seems to be slowing down. But in light of this slowdown, Elman says acquiring Tableau was a "smart, strategic move." Tableau also runs on private data centers, which complements Salesforce's cloud software business, opening the door for new customers.
"The revenue numbers [of Tableau] are going to be a really big boost," Elman said. "It's huge for showing growth as organic growth slows down."
The big question is what Salesforce will ultimately do with Tableau, says Pat Walravens, director of technology research at JMP Securities.
"The bull case is they're going to use the smarts and the technology and the knowledge of Tableau to create a really good analytical application that uses Salesforce's data," Walravens said. "They haven't really pulled the curtain back on that yet. For now, they say they're operating as separate companies but at some point that's going to change."
Because of this acquisition, analysts expect to see higher than expected growth for Salesforce going forward. Besides Tableau, Salesforce is also diversifying its offerings through other acquisitions, such as of MuleSoft and ClickSoftware. All told, analysts say, these moves show that Salesforce is expanding in ways that could prove to be smart.
"We continue to like the stock as the fundamentals of the business remain solid and the demand environment is strong," Bhavan Suri, partner at William Blair, wrote in a note. Salesforce has a strong record of integrating acquisitions and generating inorganic growth, which leads us to believe there is upside to Tableau numbers in the second half of the year."
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