Stock Market Commentary for 11/27/2020:
- The stock market continues to grapple with two powerful forces. On one side, there is optimism for the post-pandemic world. On the other side, there is fear that surging COVID cases will delay economic recovery. Economic data on Wednesday disappointed, as U.S. unemployment claims rose for the second straight week. The rotation out of tech shares and into cyclicals seemed to reverse the cautionary economic news. The tech-heavy NASDAQ Index outperformed the overall market.
- The Fed released minutes from its November FOMC meeting. Interest rates were kept at zero, while bond purchases will continue at a pace of $120 billion a month to support financial markets. The Fed indicated that it can provide more support if needed.
- Coronavirus tracker: Per Johns Hopkins, the U.S. reported 175,321 new cases on Wednesday, and hospitalizations reached 88,080. U.S. vaccinations are poised to begin in less than 3 weeks, according to the head of ‘Operation Warp Speed,’ Moncef Slaouim.
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Top Investment Story #1: Will Salesforce Pay $17 Billion for Slack?
What is Happening?
Salesforce talks to acquire Slack in a deal that would value the corporate messaging platform at over $16 billion. Slack stock traded up 37.59% on the news, while Salesforce declined 5.37%. Let’s explore why Salesforce wants this acquisition.
Why does this Matter?
Slack shares were down 20.53% since the company’s public debut in June 2019. They have been on a mission to upgrade the corporate email experience with a fun, efficient, and organized messaging and file-sharing platform. Even though Slack arguably has the best product in the space, the stock has been weighed down by fierce competition from Microsoft Teams. Teams has over 115 million users, while Slack only has an estimated 12 million. So why is Salesforce interested in acquiring the company?
- Salesforce is a serial acquirer: The $225 billion company spent over $30 billion in the last decade to acquire companies such as Tableau for $15.3 billion in 2019, and MuleSoft for $6.5 billion in 2018. Salesforce almost acquired LinkedIn back in 2016, but Microsoft outbid with a $27 billion offer.
- Microsoft already competes with Salesforce in software for tracking customers. Microsoft even tried to buy Salesforce at one point to end this.
- The acquisition would bolster Salesforce’s collaboration engine and product footprint. Salesforce can also provide the resources Slack needs to compete with Microsoft Teams.
Slack would be the largest acquisition of Salesforce to date. Acquisitions tend to underdeliver, but Salesforce is one of the few companies that have an impressive track record of acquiring businesses and creating shareholder value. Slack isn’t valued cheaply, at 28.13x sales, but the stock hasn’t surged nearly as much as others in the same space. Slack was only up 28.50% YTD prior to the announcement, while Zoom Video surged 544%.
Top Investment Story #2: Consumers Hurt After Amazon Web Services Outage
What is Happening?
Amazon Web Services experienced an outage Wednesday, which temporarily shut down the websites and programs of dozens of high-profile clients. Adobe, Twilio, Roku, Autodesk, and more were directly effected.
Why does this Matter?
Outages of various kinds have caused issues in the past. Cloudflare outages have cost firms hundreds of thousands of dollars in potential orders. This episode from AWS, its first since 2017, is concerning as we enter the Cyber 5.
The Cyber 5 are considered to be the busiest eCommerce days of the year in the United States. From Thanksgiving to Cyber Monday, eTailers need to be assured that their sites will not be adversely effected by their CDN’s (such as AWS), or any third party vendors.
Although AWS has a spectacular track record, the timing of this issue is alarming. One should not expect any outages over the weekend, but if there is, AWS clients could potentially lose millions in collective sales.
CDN issues and outages are scary in this environment. With in-store restrictions varying from state to state, AWS clients cannot afford to have their sites go down in the coming days.
– Written By Jack Dunne