Beleaguered workplace-collaboration software firm Slack has seen its stock plummet since its IPO last year, but are bearish investors about to turn bull?
Jan. 29, 2020
Slack Technologies (NYSE: WORK) has been a divisive stock among investors since its direct listing on the market last June. Having fallen more than 40% from its highs, it was among the litany of struggling 2019 unicorns, which included Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT). After months of turmoil, however, the stock seems to have been handed a lifeline.
Slack initiated as ‘overweight’
Slack shares rose more than 4% on Tuesday after analysts from Wells Fargo (NYSE: WFC) gave the company an ‘overweight’ rating and a $30 price target, believing that shares were at a favorable entry point for investors.
The instant messaging platform has been subject to much bearish sentiment thanks mostly to the increasing success of Microsoft’s (NASDAQ: MSFT) ‘Teams’ software, which serves as a direct rival. When putting a $1.2 trillion Big Tech giant against $11 billion Slack, it’s easy to see why investors got nervous.
Despite this, some investors are now beginning to believe that bearish sentiment surrounding Slack’s competition has been overdone. Despite tough competition, Slack has still managed to grow revenue roughly 60% year-to-date, and could show further growth in its upcoming earnings report.
Slack’s main concerns
Despite this, not all investors will share Wells Fargo’s enthusiasm for Slack. Analysts from InvestorPlace believe that the stock is set to further weaken, as it has done for months now. As the stock has hovered around the $20 mark for the past three months, some analysts believe that it will need to show extraordinary results at its reported March earnings call in order to maintain its level, as it is showing few signs in the way of upside.
Like its main competitor, Microsoft boasted more than 20 million daily active users (DAUs) in its latest earnings call, while Slack had only 12 million, despite being an older service. Growth in this department has been a problem for Slack since going public. The company reported 58% revenue growth in the second quarter of fiscal 2020, which points to a substantial slowdown. In comparison, the company’s top line grew by over 100% in fiscal 2018 and 82% in fiscal 2019, and it has already begun implementing subscription discounts, drawing it into a price war with Microsoft and Facebook that it does not have the resources to win.
Can Slack coexist with competitors?
The short answer is yes. In investing, a lot of us are guilty of thinking in terms of a zero-sum game. The truth of the matter is that internal business communication is not going to be dominated by one company.
Consider how many companies have email software, and Slack is out to end that. There is plenty of market share to go around. Competitors such as Microsoft Teams and Facebook marketplace (NASDAQ: FB) will claim their chunks of the market — which is expected to be worth $17 billion by 2024 — and Slack will have its own slice.
Slack is definitely not out and is showing no signs that it will go quietly into the night.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Slack. Read our full disclosure policy here.