Salesforce.com has bought Tableau, but you should buy Microsoft – Microsoft Corporation (NASDAQ: MSFT)



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For example, Salesforce.com has just bought Tableau (NYSE: DATA), and investors in both stocks are wondering what to do next. I want to throw my hat in the table of analysts who think they know the best way to play this news. Let's start with an image that includes Microsoft (NASDAQ: MSFT):



(Source: Damon Verial, Yahoo Finance data)

Microsoft?

Clearly, MSFT was the winner here, with the only Sharpe ratio greater than one and the lowest, medium and maximum draws. MSFT also offers the lowest volatility here. It all sounds good to MSFT – but why are we talking about MSFT?

Because Microsoft has been the market leader in business intelligence for two years. Tableau was the market leader, but recently fell behind Microsoft. According to Gartner's research, Tableau has fallen behind, making the purchase of Salesforce a kind of savings vehicle for a company that is struggling to maintain its lead in the market.

Here is the story of Microsoft's rise in relation to the Tableau fight (paradoxically displayed via Tableau). We are in 2015, when Tableau stood out from others:



(Source: Interworks)

In 2016, Microsoft and the Qlik Group, acquired by private equity firm Thoma Bravo the same year, achieved market-leading status:



(Source: Interworks)

This brings us to 2019, where Microsoft has become the market leader, having surpassed Tableau in 2017:



(Source: Interworks)

While many are wondering why Salesforce would buy such an overvalued company, the answer is obvious: if Salesforce (note its presence in the 2019 chart above) will actually equate Tableau, this combination would give Microsoft a good fight. At the very least, the buyout avoids Tableau from being ranked as market leader by Microsoft.

Major Salesforce problem

One of the competitive advantages of Microsoft is its decision-making stack. Salesforce runs entirely on Oracle databases (NYSE: ORCL). This can be a problem for both Salesforce and its customers.

More particularly, this poses security problems. Customers essentially deliver their data to Salesforce, but Salesforce is not able to handle all of that data, but to pass it to another company. For customers working with sensitive data, this can be a significant enough problem to allow them to choose Salesforce's competitors over Salesforce. In addition, without a BI stack, Salesforce is unable to integrate all types of data.

Salesforce has repeatedly reported that he wanted to free himself from Oracle. However, Tableau's redemption is much easier to understand: Tableau has a BI stack. The acquisition of Tableau gives Salesforce the opportunity to position itself as a true competitor of Microsoft BI, enabling customers to run a comprehensive, integrated data infrastructure.

A new challenger

If Salesforce integrates Tableau in which users can both integrate all data and store data (as opposed to the cloud), this will give Salesforce a competitive advantage over Microsoft (which stores data on the cloud). However, this must be done quickly because Microsoft contacts many companies, pushing both Power BI and getting feedback, the same feedback that led to its rapid growth in this market. I think the potential is there: Salesforce has the marketing skills to compete with Microsoft, while Tableau has Microsoft's technological prowess.

The combination clearly makes the Salesforce / Tableau combination the biggest threat so far for Microsoft. So, even if traditional financial analysis is too expensive for Tableau, redemption may seem logical if you plan for the long term. In addition, Salesforce bought Tableau with a stock, which is too expensive.

However, this news does not justify the prices for CRM and DATA. I refer you to my discounted cash flow (DCF) analyzes for these three stocks. The trends are clearly different – as in the first graph of this article, one does not look like the others:



(Source: Damon Verial, ADVFN data)



(Source: Damon Verial, ADVFN data)



(Source: Damon Verial, ADVFN data)

It is clear that valuation trends for CRM and DATA are increasing rapidly, while MSFT is fading. Looking at these graphs all day, almost every day, I can tell you that I have already seen this trend. When the stock is constantly higher than the DCF value, it is fueled by the hype, itself fueled by real growth. However, this tends to be a trend in stocks with large drawdowns, while the opposite (DCF values ​​consistently higher than stock prices) is associated with slow but reliable dynamics.

In fact, compare the growth rate of Microsoft:



(Source: Damon Verial, ADVFN data)

With that of the CRM:



(Source: Damon Verial, ADVFN data)

The most reasonable conclusion is that Salesforce is trying to fight Microsoft in this market. The buyout of Tableau changes Salesforce's potential in this market. However, this hardly justifies its price in relation to its fundamental parameters.

Conclusion

At the moment, Microsoft is the best bet in the field of business intelligence. Not only is it already a leader in the market, but the title itself far surpasses CRMs and DATA. I would like to say that the CRM is a good buy, because I think the acquisition was smart, but "one day could be a good competitor of Microsoft" hardly justifies a price / earnings ratio of 100x.

I think MSFT is quite popular, but I am also expecting a setback. I would buy on the dip if you want to invest in BI. As for the CRM, if you want to speculate, go ahead and buy now. If you want to invest, you probably have to wait about a month, because Salesforce defines its goals more clearly with Tableau's acquisition.

On a final note, MSFT and CRM have shortcomings in their graphics. The first shows a widening gap on the buying pressure. The latter shows a gap with the news reactions.

Bonus: gap analysis

Both look like sector gaps for me. My backtest is okay. Here is the expected return to buy this gap in MSFT:



(Source: Damon Verial, Yahoo Finance data)

Most are clearly gaps. On occasion, we see significant profits from buying these spreads. These are the separative gaps and they almost offset the losses of the sectoral gaps. If you want to play this gap, be short but cover your risk up. If you want to buy MSFT, consider waiting for a withdrawal.

Here are the results of the backtest for the gap in the CRM:



(Source: Damon Verial, Yahoo Finance data)

This is probably a gap. You can go a long way here, but an option strategy is the best method, given the uncertainty in CRM after buying Tableau. If you want an option strategy for this gap, or even the gap between MSFT, feel free to contact me.

For now, the word of the end for investors interested in business intelligence: buy MSFT once the gaps filled; wait for CRM because we are waiting for more details.

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Disclosure: I / we have / we have no position in the actions mentioned, and we do not intend to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose shares are mentioned in this article.

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