Leading on-demand customer relationship management (CRM) and cloud computing company Salesforce.com Inc. (CRM) completed the acquisition of cloud-based application solution provider, Heroku. Salesforce paid $212.0 million in cash. The company also granted restricted shares worth $27.0 million and paid $10.0 million for unvested Heroku shares.
Founded in 2007, Heroku is a multi-tenant platform and hosting environment, which is based on the Ruby programming language. Heroku makes deployment and management of next-generation cloud applications easier and more pocket friendly. The latest and simpler programming language of Cloud 2, the Ruby application, is gaining significant traction.
The acquisition will enable Salesforce to advance in the Cloud 2 platform. Heroku’s Ruby-based platform-as-a-service will allow Salesforce’s customers to easily develop advanced applications. Additionally, the takeover will extend Salesforce’s offerings, since customers will be able to access numerous cloud-based application programs developed by Heroku. Moreover, Salesforce’s cloud-exposure and Heroku synergy could lead to a large share in revenues from the cloud-services market, which Interactive Data Corp. expects will reach $55.0 billion by 2014.
Although the Heroku acquisition will expand the customer base and market share of Salesforce, it may not move the revenue needle much for the upcoming quarters or fiscal 2012. Salesforce will also witness a per share dilution of approximately 2 cents in its 4Q11 earnings and roughly 12–13 cents in its FY12 earnings. Moreover, the impact of the acquisition will be greater on a GAAP basis, than on a non-GAAP basis.
Salesforce.com reported decent third quarter fiscal 2011 results. It also provided an encouraging guidance for the fourth quarter and raised the full-year fiscal 2011 expectations on improving fundamentals.
We, however, caution investors about strong competitors in the CRM application and cloud-computing areas. Google Inc. (GOOG) and Microsoft Corp. (MSFT) have especially been fighting to win government clients at local, state and federal levels to use their online e-mail and other applications that fit the cloud-computing space.
Currently, Salesforce.com has a short-term Hold recommendation, as is indicated by the Zacks #3 Rank.
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