Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

FREE EBOOK

How to Day Trade Stocks & Indices

  • Place your first trade
  • Identify 9 chart patterns
  • Pro strategies step-by-step

You'll also receive our newsletter and other Opto emails in accordance with our privacy policy. This form is protected by reCaptcha

Don't miss out

Get our FREE Day Trading guide

+ Pro-trader interviews

You'll also receive our newsletter and other Opto emails in accordance with our privacy policy. This form is protected by reCaptcha

FREE Trading guide

Including Day trading strategy examples

+ Pro-trader interviews

You'll also receive our newsletter and other Opto emails in accordance with our privacy policy. This form is protected by reCaptcha

Industry Spotlight

Cloud wars: Salesforce’s share price versus Microsoft’s share price

Cloud wars: Salesforce’s share price versus Microsoft’s share price

Since the start of the year, Salesforce’s [CRM] share price has gained 34.5%, climbing from $163.92 to close at $220.57 on 9 December. The stock is also up 91.3% since falling to a 52-week low of $115.29 on 18 March, but 22.4% below the intraday high of $284.50 that it reached on 2 September. Salesforce’s co-founder Marc Benioff described its $27.7bn acquisition of Slack [WORK] as a “match made in heaven”. Can the purchase really help Salesforce’s share price triumph over Microsoft [MSFT] share price?

Microsoft’s share price was up 33.3% since the turn of the year. The stock opened the year at $158.78 on 2 January and grew to $211.80 by 9 December. Since bottoming out at a 52-week low of $132.52 during the market sell-off in March, Microsoft’s share price has risen 59.8% and was trading 9% off its intraday high of $232.86 from 2 September. 

 

 

Heavy margins

While there are some similarities between the performance of Salesforce’s share price and Microsoft’s share price in 2020 — neither company has broken away this year, for example — Microsoft has arguably weathered the pandemic best.

In the three months to the end of September, Microsoft reported revenue of $37.2bn, comfortably surpassing analysts’ exceptions of $35.72bn and up 12% from the year-ago period’s $33.06bn. Its productivity and business processes segment, which includes its Teams product, accounted for almost a third of all revenue, bringing in $12.3bn. That represents a jump of 11% year-over-year. 

Microsoft bundles its Teams product into its 365 offering, meaning subscribers get the collaboration and communication tool for free. This has been critical to growing Teams’ user base. As of the end of October, the tool had just over 115 million daily active users, Satya Nadella, CEO of Microsoft, noted during the company’s first-quarter fiscal 2021 earnings call. This was up from 75 million at the end of April.

115million

Microsoft Team's daily active users as of end of October

  

In comparison, for the three months to the end of October, Salesforce reported revenue of $5.42bn, up 20% on the year-ago quarter’s revenue of $4.51bn. While it beat analysts’ expectations, there were signs that revenue growth had slowed. The company had reported revenue of $5.15bn in the previous quarter, which had represented a 29% increase year-over-year.

There are also concerns that the company needs to be more innovative. In a mid-November note to clients seen by Business Insider, Morgan Stanley equity analyst Keith Weiss warned that Salesforce’s acquisition strategy (which has included Mulesoft and Tableau) has resulted in lower margins for the company. 

 

 

“Given the current scale of Salesforce and a growth strategy heavily incorporating [mergers and acquisitions], we believe a sharper focus on [earnings per share] growth will likely be needed to drive shares materially higher from here,” wrote Weiss, who has a target of $275 on Salesforce’s share price. He had downgraded it from Overweight to Equal Weight. 

Salesforce’s decision to buy Slack could raise some eyebrows, but the company expects the tool to bring in $600m in fiscal 2022, assuming the deal closes by the end of the second quarter. In total, Salesforce is expecting revenue for the full fiscal year 2022 to be between $25.45bn and $25.55bn, which would represent an increase of 21% on its revised fiscal 2021 revenue guidance of $21.1bn. 

“Given the current scale of Salesforce and a growth strategy heavily incorporating [mergers and acquisitions], we believe a sharper focus on [earnings per share] growth will likely be needed to drive shares materially higher from here” - Morgan Stanley equity analyst Keith Weiss

 

Salesforce and Microsoft go head-to-head

So, what could Salesforce’s takeover of Slack mean for its rivalry with Microsoft?

These tech titans have history. Bill Gates’ firm tried to buy Salesforce in 2015 for a reported $55bn and then in 2016, Salesforce looked to purchase LinkedIn — ultimately, of course, it lost out to Microsoft. That same year, Microsoft also looked to purchase Slack for $8bn but was rebuffed. Now, Salesforce’s acquisition could see the competition between the two giants become even fiercer. 

According to Wedbush Securities' Dan Ives, the opportunity to acquire Slack and gain an edge over Microsoft made it a “now or never” acquisition for Salesforce. 

“If Salesforce wants to expand beyond its core gold mine of sales and marketing departments … this was the moment and thus represents a major shot across the bow against Microsoft,” Ives wrote in a note to clients, as reported by BBC.

“If Salesforce wants to expand beyond its core gold mine of sales and marketing departments … this was the moment and thus represents a major shot across the bow against Microsoft” - Wedbush Securities' Dan Ives

 

The hope is that the purchase will help Salesforce to rival Microsoft’s Teams offering. Slack has struggled to grow its user base in recent months, as highlighted by analysts at Mizuho Securities in a note to clients seen by Report Door

“To illustrate [Slack’s] plight, the company had 12 million daily active users (DAUs) as of September 2019. Meanwhile, Teams overtook [Slack] with 13 million DAUs two months prior to that. [Teams] has since exploded,” they wrote. 

In general, analysts are bullish on Salesforce. Among 38 Wall Street analysts polled on Marketbeat, two rate it a Strong Buy, 29 rate it a Buy, five a Hold and two a Sell. The consensus target of $261.31 represents a 15.5% increase from Salesforce’s share price as of close on 9 December.

As for Microsoft, there are 33 Wall Street ratings available on Marketbeat. Two are a Strong Buy, while the majority 29 are a Buy and two rate it a Hold. The consensus price target is $232.29, which would be a 79.6% increase from Microsoft’s share price (as of close on 9 December).

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

  • Includes free newsletter updates, unsubscribe anytime. Privacy policy

Written by

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Related articles

7 Interviews with the world's best traders

Learn about the techniques and strategies used by expert traders

Get it now