Goldman Sachs Downgrades Slack To Sell On Competition Risk

Slack Technologies Inc WORK has been an obvious beneficiary of the pandemic and the resulting remote-work trend. However, one analyst anticipates challenges to its market share.

The Slack Rating: Goldman Sachs analyst Heather Bellini downgraded Slack to Sell but maintained her price target at $30.

The Slack Thesis: As of late, Microsoft MSFT Teams has recorded stronger adoption trends than Slack has, according to data from comScore and SensorTower. Bellini expects Microsoft to leverage Office 365 packaging to drive further adoption of Teams and elevate its rivalry with Slack.

“As such, there is the potential for this to impact Slack’s long-term growth rate and penetration of its addressable market,” the analyst wrote in a note.

The consequences of competition would compound secular trends that threaten demand.

“With the company having significant SMB exposure (~25% of its revenue is from companies with less than 100 employees) as well as exposure to industries directly impacted by the pandemic (less than 20% of its business), we see an elevated risk of churn over the next 12 months, as well as the risk that ELAs [enterprise license agreements] of impacted industries get negotiated downward due to layoffs,” Bellini wrote.

WORK Price Action: At the time of publication, Slack's stock traded down 3.5% around $33 per share.

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