Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

International Business Machines Corp. (IBM) and, Inc. (CRM) Shoot for the Cloud

International Business Machines Corp. (NYSE:IBM)Private employers added 135,000 jobs in May — fewer than expected — and that is probably what’s weighing on stocks this morning. The S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (INDEXDJX:.DJI) are down 0.21% and 0.18%, respectively, as of 10:05 a.m. EDT.

A cloudy shopping day

In a “race to the cloud,” software upstart and Dow component are snapping up two providers of software as a service, or SaaS, in deals with a combined value of $4.5 billion.

In truth, cloud computing — which enables businesses to use hosted software via the Web without having to install it in-house — is part of, inc. (NYSE:CRM)‘s DNA, so the acquisition of ExactTarget, which bills itself as “the global marketing SaaS leader,” is no surprise.

For International Business Machines Corp. (NYSE:IBM), on the other hand, buying SoftLayer — a provider of platform and infrastructure for cloud-computing applications — is part of a conscious bet on the cloud as International Business Machines Corp. (NYSE:IBM) adapts to the changing marketplace of business IT. The technology blue chip says it aims to derive $7 billion in annual revenue from cloud computing in 2015 (for comparison, International Business Machines Corp. (NYSE:IBM)’s 2012 revenue was $102 billion).

One thing the two deals have in common: They both look pricey, as the following table highlights:

Acquisition Target Acquisition Price Trailing-12-Month Sales Price/Sales
ExactTarget (acquirer: $2.5 billion $317 million 7.9
SoftLayer (acquirer: IBM) $2 billion $400 million* 5

*Estimate for the most recent full year. Source: S&P Capital IQ; Financial Times.

SoftLayer is a private company, so it doesn’t release financials. Meanwhile,, inc. (NYSE:CRM), in its largest acquisition to date, is offering to pay $33.75 per share for ExactTarget — that’s a 53% premium to Monday’s closing price for a company that has not had a profitable year since 2008, when it earned $3.6 million on $72.3 million in revenue.

I don’t understand Saleforce’s valuation, and this deal does not give me greater confidence in the firm’s stewardship of shareholder capital. It smacks of an excessive enthusiasm for growth with insufficient regard for economic return. Without SoftLayer’s financials, it’s difficult to offer any opinion on International Business Machines Corp. (NYSE:IBM)’s purchase, but IBM has a much longer track record of creating shareholder value than, inc. (NYSE:CRM). Between International Business Machines Corp. (NYSE:IBM), at 12.1 times the next 12 months’ earnings-per-share estimate, and Salesforce, at 76 times, I know which shares I would bet on today.

The article IBM and Salesforce Shoot for the Cloud originally appeared on

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends, inc. (NYSE:CRM). The Motley Fool owns shares of International Business Machines Corp. (NYSE:IBM).

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.