At a premium of slightly more than 50%, it’s not surprising that salesforce.com, inc. (NYSE:CRM)‘s decision to acquire cloud marketing specialist ExactTarget Inc (NYSE:ET) wasn’t greeted with cheers from investors. The aggressive move by Salesforce CEO Marc Benioff to drop $2.5 billion on a company that has issued revenue guidance of just $376 million to $379 million for the year seems a bit much, and based on Salesforce’s share price drop at the open, the market agrees. But don’t be too hasty to abandon Salesforce shares — there may be a method to Benioff’s madness.
Prior to the acquisition announcement, ExactTarget Inc (NYSE:ET) was a $1.53 billion cloud-based digital marketing company losing money and eating into its ready cash, even as it consistently grew quarterly revenues. (Not surprising, really, when you consider that when ExactTarget was founded in 2000, the notion of cloud-based marketing solutions didn’t register even as a blip on the radar.)
But setting its lack of positive earnings aside for a moment, ExactTarget Inc (NYSE:ET) isn’t without its successes, most notably its client list. With over 6,000 clients — including folks like The Coca-Cola Company (NYSE:KO), Nike, Inc. (NYSE:NKE), and The Gap Inc. (NYSE:GPS) — automating digital marketing campaigns represent a rapidly growing market that is only going to get bigger. How much bigger? This is where the acquisition gets interesting for salesforce.com, inc. (NYSE:CRM).
According to Yvonne Genovese, a managing VP with Gartner Inc (NYSE:IT), “Marketing was the fastest growing CRM category in 2012, growing at 21% (more than four times the software industry forecast norm in 2012).” Genovese expects marketing “will be the largest growing CRM category through 2017.” In the press release announcing the acquisition of ExactTarget Inc (NYSE:ET), Benioff also alluded to expectations that by 2017, companies’ chief marketing officers will spend more on technology than CIOs.
What it does for Salesforce
For salesforce.com, inc. (NYSE:CRM), the ExactTarget Inc (NYSE:ET) deal is all about providing customers with end-to-end solutions in the exploding cloud digital marketing CRM market. The acquisition provides an immediate inroad into some of the biggest companies in the world, and gives Salesforce additional revenue alternatives with its existing clients.