Despite rallying more than 160% from March through June of this year, shares of
Slack (NYSE: WORK) have had a disappointing couple of months where they’ve been putting in lower highs and lower lows. A formal downtrend is definitely in the works if not already formed which must be particularly jarring for investors as on the face of it, Slack should be one of the best performing work-from-home stocks out there.
The company’s platform offers companies and their employees an internal instant messenger, which can only have become more necessary and pertinent in the wake of COVID-19. With more people than ever before working from home, easy to use and instantaneous communication tools have become more necessary than ever. We’ve seen the likes of Docusign (NASDAQ: DOCU) and Zoom Video (NASDAQ: ZM) continue to impress but Slack has unfortunately gone back to losing ways.
Back In A Downtrend
Having only IPO’d in June 2019, the stock had put in a dirty few months of trading before COVID rolled around. Shares had trickled down more than 50% from their opening highs before rallying up the other side of the halfpipe in April and May. Now though they’re back at pre-COVID levels, reverting to that previous downtrend and causing many investors to wonder how they’ve gotten it so wrong.
Earlier this week, Morgan Stanley helped shed some light on that question for them as they cut their rating on the stock, moving it down from Equal-Weight to a bearish Underweight. The big driver behind this was an internal survey that showed "fading positioning versus an intensifying competitive landscape” and that the likes of Zoom Video and Microsoft (NASDAQ: MSFT) are capturing an increasing portion of post-COVID corporate spend.
Both of these companies have several strings to their bow that enable them to appeal to companies as an all-in-one kind of communications solution. Zoom, with it’s now famous video conferencing platform, recently announced plans to introduce an instant messenger, while Microsoft has its Outlook and Teams suite as well. As Morgan Stanley summed up, Slack is struggling to prove "its differentiation for information worker use cases."
Weak Billing Numbers
The company did itself no favors either with a bad earnings miss in September. Their Q2 billing numbers came in well below where analysts expected and as a result shares fell close to 20%. Wall Street has proved itself willing to buy into the hype around tech stocks this summer but is equally as willing to pull the plug if the numbers don’t quickly justify the share price.
Despite all this negative sentiment though Slack still has plenty of good things going for it. The same earnings report showed revenue was up close to 50% year on year and there was an 80% increase in the number of their customers who have ARR greater than $1 million.
Plenty of Positives Remain
As CEO Stewart Butterfield said with the release, “paid customer growth - which is the single most important driver of the business over the long term - accelerated in Q2, up 30% year-over-year. One of the drivers of this acceleration was Slack Connect. We ended the quarter with more than 380,000 connected endpoints, up more than 200% year-over-year, and now more than 52,000 Paid Customers use Connect, up 160% year-over-year".
There are plenty on Wall Street who’ll say that competition is a good thing and if Slack can find a way to get back their competitive edge, they'll have a solid revenue machine to build a future on. While things might get a little ugly in the near-term, there’s solid support around the $26 mark for investors to work entries around. An upside beat in their next earnings report could then go a long way to letting them know that they’re ready to get back to winning ways.
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