Is Marc Benioff’s current shopping spree about to get out of control?
That’s the question that Salesforce.com Inc. CRM, -5.63% investors were asking themselves on Friday, when CNBC reported that Twitter Inc. TWTR, +21.42% is engaged in a series of conversations with a number of potential buyers, including Salesforce. That report, followed by other reports confirming merger discussions, lead to the biggest one-day spike in Twitter’s shares in its history, but a nearly 6% decline in the shares of Salesforce CRM, -5.63% on Friday.
Benioff, the co-founder and chief executive of Salesforce.com, has been on a major shopping tear this year, as seen in the company’s $ 2.8 billion all-cash deal to buy DemandWare just a few months ago. It also snapped up Quip Inc., a developer of live document technology, for $ 582 million in stock. In the last few years, it also purchased a slew of artificial intelligence startups that formed the basis for its new Einstein product lineup, which the company likes to claim will make its cloud-based customer relationship management software the smartest in the world.
It’s also worth noting that Salesforce lost out on a bid to buy LinkedIn, the professional social networking site that was instead scooped up by Microsoft Corp. MSFT, -0.67% earlier this year. Benioff was asked about his buying binge during the company’s most recent conference call with analysts, and specifically, whether he was using acquisitions to get to his goal of hitting $ 10 billion in revenue. Benioff said that M&A was not initially in Salesforce plans in the beginning of the year, but that some deals just presented themselves as too good to pass up.
He has shed some light on Salesforce’s thinking: “…there were some pretty big changes that happened in the market, and the first one, I know you covered, which was that LinkedIn did not have a great quarter and their stock dropped by 50%,” Benioff said last month. “And when that happened, it really triggered our process, because all of a sudden, a great company that is a unique asset, that’s strategic, was available at a great price. And so we made a bid for LinkedIn, and another company, as you know, Microsoft, made a bid, and Microsoft outbid us. And that happened for a lot of different reasons, but we thought that that was a great asset at a great price.”
So before Friday’s rumors, shares of Twitter were down about 30%, setting up the social media firm as another possible good deal in the making based on Salesforce’s recent approach. But does that mean Twitter is a good fit for Salesforce and does it even have the wherewithal to pull off another big merger this year?
In its most recent quarter ended July 31, Salesforce reported that it has $ 3.3 billion in current cash, marketable securities and other current assets, with accounts receivable making up $ 1.3 billion of that total. After its stock surge Friday, Twitter’s market cap was about $ 13 billion, meaning that Salesforce would have to use stock in its approach.
In addition, buying Twitter does not appear to make much strategic sense for the cloud computing company. Salesforce already has a deal with Twitter, in which its sales-force customer base uses Twitter’s vast amounts of data for lead generation in real time.
Many on Wall Street believe a better candidate is Google-parent Alphabet Inc. GOOG, -0.04% GOOG, -0.04% which made a play for Twitter in the past. Google has had a couple of busts with social media, and its current focus on making in-roads in cloud computing, self driving cars and other “bets” leave some observers wondering if it’s just no longer interested. However, Twitter’s big focus on video in recent months, since the return of co-founder Jack Dorsey as CEO, could be a better fit with Google’s YouTube business.
“I think Alphabet is probably the best [match],” said Ali Mogharabi, a Morningstar Equity Research analyst. “Their growth has stalled, they have been disappointing the Street for awhile, and at the same time, it’s still a pretty big company.”
None of the companies are commenting. It’s also worth considering whether a media company, such as Comcast or Walt Disney Co. DIS, -0.15% where Dorsey sits on the board, would be a better fit, as Twitter morphs into more of a media company.
Could Salesforce’s Benioff, feeling burned after the LinkedIn failed bid, be hoping to grab another marquee name, even it’s too expensive and seemingly ill-fitting?
Given possible interest from other companies sitting on more cash, Benioff and team could end up spurned yet again in another deal quest.