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Dow Jones Barely Changed as Salesforce Stock Tumbles on Slack Acquisition, Walmart Takes a Shot at Amazon Prime

The Dow Jones Industrial Average (DJINDICES: ^DJI) had largely recovered from early losses by early Wednesday afternoon, but the index was still down about 0.1% at 12:30 p.m. EST. The Dow's biggest loser was salesforce.com (NYSE: CRM), which tumbled after the software company reported solid quarterly results and announced the massive acquisition of Slack (NYSE: WORK).

Also declining on Wednesday, but not by nearly as much, were shares of Walmart (NYSE: WMT). Walmart announced that subscribers to its Walmart+ service would now receive free two-day or next-day shipping on Walmart.com orders without any spending minimums, making the service a closer analog to Amazon Prime.

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Salesforce drags down the Dow

Shares of software giant Salesforce were down big on Wednesday despite a third-quarter earnings report that checked all the boxes. Revenue was up 20% to $5.42 billion, beating analyst estimates by $160 million. Adjusted earnings per share came in at $1.74, up from $0.75 in the prior-year period and $0.99 higher than analysts were expecting.

Salesforce also boosted its outlook for the current fiscal year, calling for revenue between $21.10 billion and $21.11 billion, up about 23% from last year. For the next fiscal year, Salesforce foresees revenue growth of 21% to a range of $25.45 billion to $25.55 billion.

None of this prevented the stock from slumping 7.7% by early Wednesday afternoon. Investors appeared to focus on another major piece of news: Salesforce agreed to the blockbuster acquisition of Slack for a whopping $27.7 billion. Slack shareholders will receive a mix of cash and Salesforce stock, with Salesforce planning to fund the deal with a combination of cash on hand and new debt.

Salesforce plans to deeply integrate Slack into its cloud products, with Slack set to become the new interface for Salesforce Customer 360. Salesforce will also be able to sell Slack to its existing customer base, potentially boosting growth. Slack will operate as its own operating unit and continue to be led by current CEO Stewart Butterfield.

Slack generated $234.5 million of revenue in its third quarter, good for an annual revenue run rate just over $900 million. The company isn't profitable under generally accepted accounting principles (GAAP), posting an operating loss of $65.7 million in the third quarter. Salesforce expects Slack to contribute about $600 million of revenue to its fiscal 2022 results, with the deal set to close sometime in the second quarter.

Salesforce may be trying to compete more broadly with Microsoft, which offers CRM software that competes with Salesforce as well as Teams collaboration software that competes with Slack. The price tag is steep, with Salesforce paying nearly 30 times run-rate revenue. The company clearly thinks it's a price worth paying, but investors appear to disagree.

While Salesforce stock was struggling on Wednesday, shares of the software giant remain up about 37% so far this year.

Walmart goes after Amazon Prime

The big draw of Walmart's recently launched Walmart+ service is free same-day delivery of groceries and select general merchandise for orders over $35. Those orders are delivered straight from the stores using third-party delivery partners, which inherently limits the number of items available. Walmart+ is priced at $98 annually, below the $119 annual price for Amazon Prime.

Walmart sells a much wider selection of merchandise through Walmart.com, and it offers free two-day shipping on orders over $35 for everyone, with some items eligible for free next-day shipping in certain areas. On Wednesday, the company announced that Walmart+ members would be getting a new perk: Walmart.com orders would now have no minimum to qualify for free, fast shipping.

Removing the spending threshold for Walmart+ members will make the service a closer competitor to Amazon Prime. Prime still has a big advantage when it comes to product selection, but now Walmart+ members won't need to pad their shopping carts to qualify for free shipping.

Shares of Walmart were down 1.1% by early Wednesday afternoon. The stock remains up 27% since the start of the year.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Microsoft, Salesforce.com, and Slack Technologies and recommends the following options: long January 2022 $1920 calls on Amazon, short January 2021 $115 calls on Microsoft, long January 2021 $85 calls on Microsoft, and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.


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