Markets

Salesforce's Addition To Dow Spotlights Connected Economy Impact

Salesforce

Out with the Exxon. In with the ecosystem. That’s what’s going on with the Dow Jones Industrial Average, which has announced plans to swap out three stocks, including replacing Exxon Mobil Corp. with Salesforce.com.

It’s only one stock index, but the Dow is shorthand for big business. The 30 component stocks that make up the DJIA are all large-cap, blue-chip stocks generally known for growth and for being representative of their respective sectors. Car companies, airline, marquee tech names — the roster of names can change, but the overall tenor, quality and heft of Dow components tend to be relatively steady.

However, Exxon Mobil — which has been part of the DJIA in one form or another since 1928 — is now giving way to Salesforce.com. The mechanics behind the move stem from the fact that the Dow is what’s called a “stock-price weighted” index, and that Dow component Apple is splitting its stock four-to-one on Aug. 31.

That means the Dow would have less exposure to the technology sector if left unchanged. But S&P Dow Jones Indices is making a change to prevent that, and said it’s also aiming to “add new types of businesses that better reflect the American economy.”

The tech sector has typically accounted for roughly a quarter of the Dow. But market caps in the sector are getting larger — witness Apple’s recent record-setting move above $2 trillion. Salesforce’s market cap is around $200 billion, up more than 50 percent just since its recent March lows.

It should be noted that there are no hard-and-fast rules for which names S&P Dow Jones Indices include in the Dow industrials index. But as a representation of how U.S. industry is performing and changing, it’s interesting to note that S&P Dow Jones sees Salesforce as an example of the “new type of business” dominating the U.S. economy.

Many market watchers see Salesforce as a software provider. But dig deeper and it becomes apparent that the company reflects a platform model — with cloud services as a key underpinning — that goes well beyond the confines of the gig economy and, say, Uber.

And although the company’s stock ticker is CRM, the company has grown past its earlier incarnation as a firm focused on customer relationship management (CRM). For example, Salesforce said in its latest quarterly earnings call that revenues at its “Platform and Other” segment grew by 60 percent to $1.4 billion.

The company has also struck a number of partnerships and grown product lines to touch on commerce (specifically B2C and B2B commerce). For example, Salesforce offers a platform that provides end users with templates, commerce APIs and developer tools to bring commerce to apps, social media and elsewhere. This allows enterprises to touch customer holistically.

The company will report earnings after the bell on Tuesday (Aug. 25), and management’s commentary will no doubt continue to show how this intersection of marketing, commerce and the cloud continues to shape “new” types of businesses that become blue-chip stocks.

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