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Salesforce's Bid for Slack and Q3 Results: What Wall Street's Saying

Salesforce topped analyst estimates but shares fell following the announcement of its nearly $28 billion deal to buy Slack Technologies.
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Salesforce's  (CRM) - Get salesforce.com, inc. Report third-quarter earnings beat after the close on Tuesday took a backseat to its announcement that it is planning to buy Slack Technologies  (WORK) - Get Slack Technologies, Inc. Class A Report for nearly $28 billion. 

Salesforce shares were dropping 7.00% to $224.70 in premarket trading on Wednesday. 

Here's what Wall Street is saying about the quarter and about Salesforce's largest-ever acquisition. 

Barclays (Overweight rating unchanged, PT lowered to $276 from $315)

"The three main bear arguments raised will likely not hold up in the long-run and hence we expect a recovery in the shares once the dust settles. (1) Optically Q3 saw a billings miss, but cRPO [current remaining performance obligation] was ahead and we had previewed that consensus had mis-modeled billings. (2) Slack is not an overpriced deal like the CEO had discussed in Q2. Slack had meaningfully underperformed its peers post a weak Q2 and CRM used that opportunity. (3) Losing CFO Mark Hawkins is not ideal, but he was not the 'lone-defender' of improving profitability. 

- Raimo Lenschow

Oppenheimer (Outperform rating, $265 price target maintained)

"The recent slowdown in the company's leading indicators, while partially explainable due to large M&A distraction, tough comparison, and a challenging selling  environment among the distressed industries, is likely to weigh on investor confidence in the near-term. We believe long-term investors need to own the stock because of a large [total addressable market], leadership positioning, and predictability. However, achieving and likely exceeding the F4Q growth targets will be required for a higher company valuation."

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- Brian Schwartz

Credit Suisse (Outperform rating, $245 PT maintained)

"While the $27.7bn Slack acquisition was telegraphed last week by the media, the final size/consideration/valuation, a longer-than-expected time to close and lack of clarity around financial implications were disappointing. The stated rationale 'as the operating system for the new way to work' and vision to enhance Customer 360 largely jive with our take...but timing (3 months after publicly talking down M&A, and before Tableau is completely integrated) and final deal structure (no WORK go-shop period) will make it challenging even for bulls to fully digest.

- Brad Zelnick

Citi (Downgraded to neutral from buy, PT lowered to $250 from $300)

"We are downgrading shares to Neutral and lowering our PT to $250 based on unchanged 38x FY’23E FCFF [free cash flow to the firm], where our estimates have drifted lower. While we’ve liked the durable growth driver here, favorable front-office market trends and multi-product SaaS, the Slack acquisition stretches our conviction. History suggests that the stock has had challenges with multiple de-ratings after large acquisitions and we expect this deal will make this more likely."

- Walter Pritchard

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