Piper Sandler Remains Bullish On Slack On Broader Enterprise Adoption

Slack Technologies Inc WORK confirmed after market close Monday that its biggest customer International Business Machines Corp IBM had plans of going “wall to wall” with its chat app.

Although this may not lend significant upside to the current billings growth estimate for the January quarter, additional indications of wall-to-wall adoption by large enterprises could elevate Slack’s value as a strategic M&A (mergers and acquisitions) target, according to Piper Sandler.

The Analyst

Piper Sandler’s Brent Bracelin maintained an Overweight rating on Slack with a price target of $30.

The Thesis

Slack’s latest announcement implies a potential addition of 200,000 seats at IBM, given that the IT giant currently has 350,000 employees, Bracelin said in the note.

IBM’s wall-to-wall adoption of Slack may not lift the current Street estimate of 40.6% year-over-year billings growth for the fourth quarter, given the contract terms and tough compares, the analyst mentioned. He added, however that IBM’s move is an indication of Slack’s broader enterprise adoption.

Bracelin further wrote, “Our proprietary Piper Sandler JobsTracker analysis of new job postings shows several large enterprises that are hiring employees with Slack skill preferences.”

Referring to Slack’s prospects as a strategic M&A target, the analyst named IBM, Alphabet Inc GOOGL, Oracle Corporation ORCL, ServiceNow, Inc. NOW, Atlassian Corporation PLC TEAM and salesforce.com, inc. CRM as the potential suitors.