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 salesforce.com, 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: Salesforce.com)||$2.5 billion||$317 million||7.9|
|SoftLayer (acquirer: IBM)||$2 billion||$400 million*||5|
SoftLayer is a private company, so it doesn’t release financials. Meanwhile, salesforce.com, 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 salesforce.com, 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.com.
Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends salesforce.com, inc. (NYSE:CRM). The Motley Fool owns shares of International Business Machines Corp. (NYSE:IBM).
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