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Dangers Behind Salesforce and Tableau Marriages – Data Driven Investor – Medium

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Definitive Guide for Investing

Analysing Buy or Sell of Salesforce stocks using Value Investment given its latest big acquisition

Salesforce and Tableau Acquisition (Credit from Salesforce)

Today, I heard that Salesforce has announced acquisition with Tableau Software for $15.3bn as the biggest ever acquisition made by Salesforce. As a part of the all-stock deal, Tableau shareholders will get 1.103 Salesforce shares. This includes the offer values of $177.88 per share represented in 42 percent on its closing price. All seems very good for Tableau.

However, is this a good deal for Salesforce?

To answer this, I decided to do preliminary research on Salesforce and Tableau, then check the current financial standings using my own Value Investing tools.

How does Salesforce Business Model

Salesforce is an online Customer Relationship Management (CRM) tool which gives departments such as sales, marketing, and commerce an integrated view. All of these services are located at an internally hosted cloud servers. This means it provides tools for you to build your contents and keeps track of it in real time anywhere.

As it provides SaaS (Software as a Service) and PaaS (Platform as a Service), Salesforce relies on the subscription and licensing fee as the main revenue generation making. For example, Sales Cloud which starts at $25 per month per user and goes up to $250 per month per user with unlimited CRM capabilities and support. In the recent quarter, the company already made more than $600 m from Sales Cloud over the recent quarter. (Referred from Vator News)

Tableau Business Model

Tableau is a data visualization tool aiming to provide an easy drag and drop visualization tool which is user-friendly for anyone to use. With its mission is To help people better see and understand data, Tableau has been really aggressive in marketing its products among different user bases such as professionals and students. In fact in the few previous years, its user base has grown significantly over 80%

It profits from the licensing fees it gives to companies and a growing base of users who learns Tableau. For the monthly prices, Tableau Server and Professional could cost around $40 while it is $1999 for Desktop Professional licensing. Recently, Tableau also focuses on moving to Big Data and Cloud to cater to the general market demands.

Seemingly Good Marriage?

On the quick glances, it seems like the two businesses’ goal is very aligned. Both are working towards cloud services and leveraging on data trends as their main services. While at the same time, both are specializing in different data analysis pipelines, Salesforce in its CRM and Cloud Service offerings and Tableau in its Business Intelligence/Data Visualization Product.

This seems like the perfect marriage where it is greatly expected inside the data and cloud era. However, is it really the flawless marriage we have all been waiting for? What is the lurking danger that Tableau might bring to Salesforce, especially with the costly acquisition of $15.3 bn?

The marriage of data among Salesforce and Tableau (Credit to The Standard)

Value Investing Standpoint

Salesforce

Plus Point: Salesforce Strong Standing in Growth

The Salesforce growth is pretty strong as it garnered high eps growth over the 5 years (196% over 2018–2019). The annual growth rate reached 0.29 which highlighted the profit growth Salesforce proudly boasts.

Plus Point: Salesforce High Projected Future Value

Given the high PE ratio and high eps growth over the last five years, it seems Salesforce has very high Future Value projections over 10 years. Even after a 15% discount rate and a 20% margin rate to conservatively project the financial inflation and slower growth, we could still own a marginal value of $332.64. This easily exceeds the current share price.

Plus Point: Salesforce High Coverage Ratio

The interest coverage ratio of Salesforce is also improving over the last five years. This means that the risk of default from Salesforce not being able to pay their interest is getting smaller and smaller as they have more coverage from their revenue. This is definitely boosted by the explosive demands to leverage on Salesforce CRM Services (Netflix, AirBnB, etc).

Risk Point: Salesforce is Raking on Debt Since 2015

However, it seems that Salesforce has been raking on debts and high-interest coverage ratio, which seems that Salesforce has been really aggressive in its leverage. This might be very dangerous as Salesforce has been growing really fast and might struggle to adapt in a constantly changing industry.

Tableau

Risk Point: Tableau is still unprofitable

Tableau has been generating negative incomes throughout the years. In terms of eps growth, they have been losing a lot of earning over the past 5 years since 2014. Their cost of development and market acquisition is considered very high with their fast equity growth. Although they have done a good job to grow its customer base towards data visualization tools and cloud environment. The fact remains that they are losing money.

In terms of long term investment, Tableau is very risky given that the business standing is still very unstable. However, in terms of brand and general market sentiment, Tableau might be a strategic entry point for the current data era.

Plus Point: Salesforce’s Strategic partnership with Tableau

The reason why Salesforce paired with Tableau is to help businesses understand data, especially regarding their customers. This is in line to Salesforce mission.

The move seems to make a strategic move given how lined up a visualization tool like Tableau to be assets for up for Salesforce. It also remains understandable that Salesforce taking advantage of the existing customer base of Tableau which seems to grow very fast. By acquiring Tableau, Salesforce has also made a public statement to mainly focus on data services and offers.

However, this acquisition might not be justifiable given the slowing growth of Tableau compared to competitive movement from other product offerings such as Microsoft Power BI, IBM Cognos, Google, and SAP which have also gained big tractions among other companies.

Top Tableau Competitors (Credit to SelectHub)

Conclusion:

The acquisition of Salesforce and Tableau is strategic for Salesforce to crystallize their cloud and CRM products into user-friendly data visualization.

However, in terms of business acquisition, Tableau is still a POC on the way of profitability. It harbors much unproven growth without much profitability to support it. This highlights how Tableau is still grossly overvalued for the $15.3bn acquisition.

How the Marriage would look like?

In the short term, the all share deal will also dilute Salesforce value to stakeholders and financial balance sheet as they need to take the unprofitable financial burdens of Tableau.

However, in the long term, if Salesforce manages to achieve a harmonic integration of the two products, it could become a force to be reckoned of, where Salesforce leads the CRM and Data Visualization market. Soon, we will start generating visualizations about our spending patterns in the Cloud Service to Tableau Dashboard just by within seconds.

Buy or Sell?

Therefore, in terms of value investing, it is a little bit too risky to buy Salesforce just yet. I could only tell to hold it until the right time comes. But given the fast growth and scale of Salesforce now, the worst might just be a little profit dent to Salesforce and this slight mission changes:

To help people better generate and understand data in the CRM Cloud. — Salesforce + Tableau

Analyse Stocks Investing with Python and Pandas

In lieu of today’s topics about stocks analysis. You could also visit another of my publication for aspiring investors. You should try this walkthrough to guide you to code quick and dirty Python to analyze, visualize, and predict stocks.

This publication is made with the help of my Value Investing Dashboard Tool. I made this for aspiring value investors to scrape critical ratios quickly. Please feel free to refer to the following publication.

Hopefully from these two publications, you could learn how to create personal values through storytelling. Please read and give claps if you like it :).

Acknowledgments

I would like to thank you for my fellow Finance Friends who help me review some of my drafts to this article. It has been a great pleasure to learn from you and hopefully this article is also useful to our readers.

Finally…

Whew… That’s it, about my idea which I formulated into writings. I really hope this has been a great read for you guys. With that, I hope my idea could be a source of inspiration for you to develop and innovate.

Please Comment out below for suggestions and feedback.

Happy coding 🙂

About the Author

Vincent Tatan is a Data and Technology enthusiast with relevant working experiences from Visa Inc. and Lazada to implement microservice architectures, data engineering, and analytics pipeline projects.

Vincent is a native Indonesian with a record of accomplishments in problem-solving with strengths in Full Stack Development, Data Analytics, and Strategic Planning.

He has been actively consulting SMU BI & Analytics Club, guiding aspiring data scientists and engineers from various backgrounds, and opening up his expertise for businesses to develop their products.

Please reach out to Vincent via LinkedIn , Medium or Youtube Channel

Disclaimer

This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual. References are picked up from the list and any similarities with other works are purely coincidental

This article was made purely as the author’s side project and in no way driven by any other hidden agenda.

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