Send me real-time posts from this site at my email
Motley Fool

Here's Why Many Cloud Computing Stocks Soared Last Month

What happened

Chatter surrounding the then-rumored buyout of Slack Technologies (NYSE: WORK) by salesforce.com (NYSE: CRM) lifted share prices of many cloud computing stocks in November 2020. Slack led the charge with a gain of 67.6%, according to data from S&P Global Market Intelligence. Sumo Logic (NASDAQ: SUMO) followed close behind with a one-month return of 51.6%. MongoDB (NASDAQ: MDB) posted a 25.8% jump in 30 days. Salesforce investors were less excited by the deal rumors, leaving the stock far behind with a November gain of just 5.8%.

Where will the next piece fit? Image source: Getty Images.

So what

If cloud-based business collaboration specialist Slack could find a buyer even though its stock price had nearly doubled year to date, other companies in that explosive sector might be in line for similar exit deals. That's the logic behind these big jumps.

Alternative database software specialist MongoDB would be a more digestible meal for a deep-pocketed buyer, sporting a $16 billion market cap compared to Slack's $24 billion cap. Log analytics expert Sumo Logic is even smaller at $2.1 billion, and its management team has a deep history of orchestrating big-ticket buyout exits for fast-growing technology companies.

Sumo went public less than two months ago, so the rumor mill hasn't had time to crystallize sophisticated buyout ideas around that stock yet. MongoDB, on the other hand, has been a constant target of buyout speculation since 2018. Suggested buyers include traditional database giant Oracle (NYSE: ORCL) and centennial technology giant IBM (NYSE: IBM).

Now what

Slack and salesforce sealed their deal on Dec. 1. Roughly 40% of the deal's financing comes from issuing Salesforce shares to Slack's stockholders. The price tag currently stands at $21.8 billion, subject to changes in Salesforce's share prices. That's a 50% premium to Slack's market value before the buyout rumblings started on Nov. 25. One enormous deal can uncork a tidal wave of consolidation across the target company's market sector, and the Slack deal is definitely large enough to inspire copycats, speculators, and adventurous investors in the cloud computing market.

It's no surprise to see potential buyout targets catching a ride on Slack's coattails under these circumstances. Both Sumo and MongoDB are high-powered growth stocks with bright futures. As a MongoDB shareholder myself, I would rather see the company disrupting the database market on its own rather than becoming a small cog in a massive business like Oracle's. But it would still be hard to say no if somebody wanted to pay a 50% premium for my MongoDB shares.

10 stocks we like better than MongoDB
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and MongoDB wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 20, 2020

Anders Bylund owns shares of IBM and MongoDB. The Motley Fool owns shares of and recommends MongoDB, Salesforce.com, and Slack Technologies. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue