What was Salesforce (CRM) supposed to do? Was it supposed to buy $1 billion companies? Was it supposed to find unicorns and buy them?
No, it had to buy at scale. It had to buy something that would move the needle, something that made it so customers could rely on the entire suite of offerings Salesforce had.
In order to buy a company that's at scale, that is not needing to go right with a small client list but instead already doing well stand alone, you have to pay up. You have to be willing to destroy near-team earnings.
The best time to do that is right after earnings are reported -- and they are excellent.
The result, as you know, is a rapidly falling stock, as those mutual funds and hedge funds with charters and orientation that won't buy the stocks of companies with earnings that are cut dump stock, coupled with arbitrageurs locking in a sale of Salesforce and a buy of Tableau Software (DATA) .
But at the end of the day, if Salesforce's stock is hit hard, as was the case yesterday, the price adjustment is in the stock.
The move was incredibly gutsy. Tableau has slightly more than $1 billion in revenue. Marc Benioff paid about 15x sales -- that's a ton of money. But let's look at some of the others that are perfect for his suite. Okta (OKTA) , $700 million. Zscaler (ZS) , $400 million. Zendesk (ZEN) , $800 million. All would have been ridiculously expensive versus the revenue, although Benioff likes all three of those companies.
They would have been equally as expensive but would not provided the scale you get from Tableau, because you get on premise -- the legacy business of Tableau -- cloud, the current business and perhaps best of all, you get Adam Selipsky, who spent a decade building Amazon Web Services (AMZN) .
Before Selipsky came on board as CEO, Tableau didn't have cloud and when it had a shortfall in February of 2016, Salesforce didn't pounce even as the stock dropped to $40. That's because Benioff went after LinkedIn, which also had a shortfall, and Tableau hadn't yet embraced the cloud. I remember talking to Marc about it and he didn't think it was a good fit. It was only after Selipsky came in and made the place a fantastic analytical dashboard for the cloud, that it became worth it for Benioff to buy. Selipsky, a frequent guest on Mad Money, is one of the smartest people I have ever met.
Of course, if you do that you are buying an expensive existing business. But you are buying the company that your customers suggest you buy. That's how you get your stock hammered short-term, as the deal for Mulesoft did last year, knocking the stock for a loop which it then recovered from within seven days.
I think this one will take longer. But I think it will be extremely rewarding because it instantly moves the needle. That's all you can ask for when you are dealing with companies this size.
