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Salesforce Goes Live on Amazon Web Services in Australia

Zacks Equity Research
Updated

CRM platform provider salesforce.com, Inc. CRM and Amazon.com, Inc. AMZN reinforced their strategic alliance through a new venture. Per the deal, Salesforce is now live on Amazon Web Services (AWS), which is likely to expand its customer base in Australia.

Salesforce will now use AWS across all of its core products which include Sales Cloud, Service Cloud, Analytics Cloud, Community Cloud and more, for customers in that region. The move appears to be a part of Salesforce's broader infrastructure expansion plan that offers customers better ways of managing their data. The AWS Sydney Region will help Salesforce to successfully expand international infrastructure.

Salesforce Continues to Expand

Given the rise in the uptake of its products and favorable performance, market research firm Gartner has acknowledged Salesforce as the world’s #1 CRM company based on total software revenues recorded in 2016.

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This is a big win for Salesforce, as it will join a list of AWS users that boasts of names like Netflix, Expedia and Adobe Systems. It must be noted that Salesforce’s flagship CRM offering competes with Microsoft’s MSFT Dynamics CRM. Microsoft ranks second in the IaaS segment. This makes Amazon, which is currently the market leader, the best company Salesforce could have opted for.

Notably, this is not the first time that Salesforce has inked a deal with Amazon. The strategic partnership between the two companies was first disclosed in mid-2016. Salesforce selected Amazon’s AWS as its public cloud infrastructure provider. It also agreed to invest $400 million on AWS services over the next four years.

Cloud & CRM Prospects

According to IDC estimates, public IT cloud services spending will increase at a four-year compound annual growth rate of 23.5% in 2013-2017.

Naturally, the overall growth expectation of the public cloud computing services market is quite bullish. According to Gartner, the worldwide public cloud services market is expected to expand 18% year over year to $246.8 billion in 2017. Further, the figure will increase to $383.3 billion by 2020.

Infrastructure-as-a-Service (IaaS) is being projected as the highest growth service, driven by improvement in PaaS and massive adoption of artificial intelligence (AI), analytics and the Internet of Things (IoT). IaaS is projected to grow from $25.29 billion in 2016 to $71.55 billion in 2020.

Moreover, per Gartner, the CRM market is anticipated to grow from $26.3 billion in 2015 to $36 billion in 2017. We believe that Salesforce is well-positioned to capitalize on the opportunity.

Salesforce, with its solid portfolio and growing partnerships, is well poised to lead the market.

Price Movement

Notably, shares of Salesforce have returned 41.9% on a year-to-date basis, outperforming the industry’s gain of just 28.7%.

Bottom Line

We believe that the partnership will be mutually beneficial for the companies, going forward. It will ensure tighter integration between Amazon and Salesforce clouds, which will help customers to leverage the security and reliability of the AWS Cloud.

Overall, the company’s diverse cloud offerings and considerable spending on digital marketing remain catalysts. Moreover, strategic acquisitions and the resultant synergies are expected to be beneficial over the long run.

However, intensifying competition from International Business Machines IBM, Oracle Corp. and SAP SE remains an overhang.

Salesforce currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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