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Salesforce.com Inc. buys Salesforce.org for $ 300 million. Funds go to Salesforce Foundation and Salesforce.org's low budget customers to Salesforce.
Pretty simple, no? Well, it's not that easy from there.
In an agreement announced Monday afternoon, Salesforce
CRM -0.39%
will acquire an independent entity created to sell Salesforce software at a discounted rate to non-profit organizations, schools, and other groups that are struggling to pay for valuable software. Salesforce.org, a public-purpose company, will instead become a Salesforce business unit, while the Salesforce Foundation – a non-profit organization dedicated to donating to groups in need – will receive the money.
While not all discussions about nonprofit organizations and foundations create a warm feeling, it does seem that this may potentially infuriate non-profit clients or Salesforce investors. Fundamentally, Salesforce's margins are likely to suffer, or non-profit clients, ranging from the American Red Cross to the Anti-Defamation League, local Goodwill industries, Habitat for Humanity to Open Hand, are likely to experience a price increase.
Salesforce has suggested that price increases are not imminent. The company announced that it plans to expand its current business model by "continuing to provide free, cost-effective software to non-profit organizations and educational institutions around the world". , and promised better access to Salesforce products.
Salesforce.org offers eligible customers a significant discount on the software as a Salesforce.com service. For example, according to its website, Salesforce.org offers Lightning, Unlimited Edition, the premier non-profit customer relationship management software, priced at $ 72 per month, compared with a standard price of $ 300 per month.
"This is a very good deal," Salesforce CFO Mark Hawkins told the few analysts who listened to the company's conference call on Monday. He stated that in 2018, Salesforce.org had a turnover of $ 250 million, but with a small operating profit margin.
But Salesforce seems to want to increase its profit margin, which probably means that invoices will be increased and sent to non-profit organizations and schools.
"It's a company that has a lower operating margin at this point … but it's also going to follow a trajectory and converge over time to our overall Salesforce operating margin over the long term," Hawkins said at the analyst's request. said the deal seemed slightly dilutive for margins.
Salesforce has admitted that this year's profits will suffer, even though Salesforce.org reported between $ 150 million and $ 200 million in additional revenue. He reduced his adjusted earnings guidance for this year by 20 cents per share and said that GAAP results would be more successful, but could not provide an accurate figure. Shares plummeted at the end of trading after the announcement of the transaction.
Hawkins said Salesforce was considering "rationalizing areas of operational duplication," which usually means job cuts, although nothing has been said about it in particular, and a spokesman said Salesforce declined to comment on the history of job deletions.
Among all the explanations that Salesforce did not give Monday about this acquisition, the most troubling is the reason. Salesforce has long been interested in philanthropy, thanks to its founder and co-CEO, Marc Benioff, himself a major philanthropist. But Benioff was completely absent from a teleconference and he had made no statement in Monday's initial announcement.
A few hours after the announcement of the deal, Monday, Benioff's generally active Twitter feed was strangely silent about swallowing one of his pet projects by his original creation. The company did not explain why Benioff was absent from the call.
Keith Block, co-CEO of Benioff, interviewed by an analyst, said the decision had been made for some time and that changing the structure would eliminate the complexity of two different organizations while maintaining Salesforce's philanthropic mission. .
"You'll see the numbers, guys," said Block. "It's really worth doing."
However, Salesforce's Monday numbers offer no reason to reach an agreement that will appeal to unhappy people, whether it's on Wall Street or in non-profit accounting offices. If it's simply an efficiency agreement aimed at reducing some costs, customers must be prepared to face price increases; if Salesforce hopes to offset lower operating margins with a little extra revenue, investors may not be reassured.
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