MuleSoft might be a major part of Salesforce's (CRM) continued success by driving demand from major customers.
Shares of the "customer company" have jumped over 8% from Tuesday's close, helped along by an earnings beat and more dovish than expected commentary from Federal Reserve Chair Jerome Powell.
Co-CEO Keith Block was particularly bullish on the prospects of the recent acquisition, name dropping key clients the new segment has started relationships with.
"We're already seeing great returns from our acquisitions of MuleSoft and Datorama and CloudCraze," he said. "Speaking of MuleSoft, integration has become a strategic imperative for all of our customers, it has captured the attention of C level executives in virtually every conversation I have and in the quarter, companies like Ahold Delhaize (ADRNY) , WeWork, Michael Kors (KORS) and contingents just love MuleSoft because MuleSoft is able to unlock data from legacy systems and accelerate their digital transformation."
The commentary confirmed the bullish suspicion Block touched on in his first conference call as co-CEO in August when speaking of the company that provides subscription integration services.
Wall Street has picked up on the bullish sentiment as well.
"This feedback aligns with our Salesforce ecosystem view, which forecasts MuleSoft doubling as a percent of Salesforce's revenue in 5 years," JPMorgan analyst Mark Murphy said.
He noted that Mulesoft contributed about half of the sequential revenue performance obligation, meaning billings under contract, for the quarter.
However, Murphy warned that this might be lumpy given the $6.5 billion acquisition cost and its rapid acceleration in its first months under the Salesforce umbrella.
"It seems clear to us that MuleSoft won't drive anything remotely close to half of the sequential RPO growth in FQ4," he clarified. "Additionally, it is worth noting that MULE didn't have an overly material impact on year over year total RPO growth of 34%."
Sequential revenue was in fact charted for a decline, despite the longer-term bullishness on the acquisition in the long run, coming in line with Salesforce's conservative forecasts.
Additionally, the company will need to commit a good degree of capital to research and development for the acquisition, adding to the debt burden that was nearly doubled by the company despite its over $4 billion cash payment towards the acquisition.
Still, so far the company's forecasts have indeed been conservative, as integration risks surrounding the company's largest ever acquisition appear to have been overblown.
"Two straight 50% + growth quarters for the platform business, and operating margin of 16.9% was 120 bps above consensus," Oppenheimer analyst Brian Schwartz said. "MuleSoft is working."