Slack (WORK) - Is the party over?

WORK shares slumped significantly after it reported its Q2 earnings.The primary reason was a miss in calculated booking expectations. So, the question is if the miss in calculated billings a consequence of events associated with the Coronavirus pandemic OR is it a function of demand drivers and the immense competitive pressure from Microsoft?


The Good:

  • Paid customers growth accelerated

  • Added 8k net new Paid customers, bringing paid customers up over 130K

  • Slack Connect that offers seamless, secure inter company collaboration could be an avenue of significant growth

  • Raised its full-year revenue and loss per share forecast, now seeing $870-876M in sales (was: $855-870M) and loss per share of $0.13-0.14 (was: $0.17-0.19)

  • Revenue hit a quarterly record of $216 million, up 49% year over year. The platform attracted 8,000 new paid customers, representing a 30% gain over the previous year and an acceleration from the first quarter's 28% growth.


The Bad:

  • Billings and net dollar retention were disappointing


WORK Quarterly Calculated Billings
WORK Quarterly Calculated Billings
  • Calculated billings missed estimates with $218.2M versus the $226.3M consensus.

  • Microsoft's competing product, Teams continues to grow and boasts 1,800 customers with more than 10,000 users

Our Stance:


Even though Slack beat expectations, it fell short of an absolute blow-out performance expected from this work-from-home technology specialist (compared to say Zoom Video Communications that reported a 355% revenue growth). However, we should not ignore that net new paid customer additions continue to grow at faster rates indicating a persistent interest in using Slack. In addition, Slack Connect could potentially be a strong growth driver. Increasing reliance on teleworking software throughout the global economy, consistently beating earnings estimates, and significantly rising revenue over time are factors that keep us still interested in Slack. Hence, we maintain a BUY rating on WORK, and believe that patient investors may be rewarded. Note that there is certainly an element of risk involved specially with MSFT intent to give it a run, so if you decide to buy it, consider opening a small position.


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Slack (WORK) - Is the party Over?
Slack (WORK) - Is the party Over?

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