Analysts Still Bullish On Slack Despite Earnings Sell-Off

Slack Technologies Inc WORK shares tumbled 14% on Thursday morning after the company’s first quarterly earnings report since its direct listing in June disappointed the market.

On Wednesday afternoon, Slack guided for revenue growth to slow significantly in coming quarters. Despite second-quarter revenue and EPS coming in slightly ahead of consensus estimates, but investors are concerned that the company’s slowing growth could be a sign that competitors like Microsoft Corporation MSFT will be eating into Slack’s market share.

Several analysts have weighed in on Slack since the report. Here’s a sampling of what they’ve had to say.

Slowing Growth

Bloomberg Technology analyst Nico Grant said Slack’s best simply wasn’t good enough for the market.

“The company is decelerating, and so whether we consider the revenue forecast for fiscal 2020, which was just short of the consensus estimate of Wall Street analysts, or if we consider the growth in the number of paid customers and large customers, but for many metrics Slack is not growing as quickly as quickly as it once did,” Grant said.

Barclays analyst Raimo Lenschow said the second quarter numbers may help get Slack and Wall Street on the same page.

“We believe Slack and investors are still only getting used to each other, which is causing some growing pains,” Lenschow wrote in a note.

MKM Partners analyst Rohit Kulkarni said reports of a one-time service outage let some of the air out of an otherwise impressive quarter.

“We are willing to give a pass to a new public company as fundamentals and metrics remain solid with (surprising) baby steps towards profitability,” Kulkarni wrote.

Buying Opportunity

Morgan Stanley analyst Keith Weiss said Slack’s second quarter was solid, but market expectations had simply set the bar too high to reach.

“While Slack missed the market's expectations for a greater acceleration in billings growth in Q2, the fundamental value proposition and large market opportunity at Slack remain unchanged,” Weiss wrote.

KeyBanc analyst Brent Bracelin said $8 million in customer credits related to the outage took a bite out of second-quarter numbers.

“We are raising estimates slightly and maintain an upward bias based on a snapback in reliability, strong enterprise traction, and a new shared channel offering that could spark strong growth in the second half,” Bracelin wrote.

Ratings And Price Targets

• Morgan Stanley has an Equal-Weight rating and $38 target.
• Barclays has an Overweight rating and $44 target.
• MKM has a Buy rating and $38 target.
• KeyBanc has an Overweight rating and $44 target.

Slack shares traded around $30 per share at time of publication, down 3% after initially dropping more than 14%.

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