Slack Technologies (NYSE:WORK) posts Q2 beats but shares plunge on weak guidance

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Updated: 06 September 2019
  • Business messaging app beats Wall Street consensus in first post-IPO report
  • Slack went public in late June at $26 per share price
  • Forecasts losses for Q3 and FY2020, shares 13.3% lower on Thursday

Slack Technologies’ (NYSE:WORK) shares slumped 13.3% on Thursday despite the workplace messaging app impressing with its first post-IPO corporate report. Guidance for slower short-term growth and bigger future losses soured investor sentiment.

Slack came out firing with revenue of $144.97m for the second quarter, 57.5% higher than the comparable period in 2018 and $3.7m ahead of the Wall Street consensus ($141.2m). Earnings followed suit as Non-GAAP EPS of -$0.14 beat forecasts by four cents.

However, cracks soon began to appear as analysts honed in on a slower rate of growth for three months to 31st July – sales advanced 58% to $145m for that period, which was down on the 82% rate from a year earlier.

Slack noted that $8.2m was lost due to service disruption in Q2.

The latest quarter beats were then offset by less-than-stellar guidance for Q3 and FY, and Slack now expects to post a loss of $0.09–$0.08 for the current quarter and a wider $0.42-$0.40 deficit for the financial year.

These expectations do not line up with Wall Street’s estimates, despite being an improvement on its previous outlook.

The report did throw up a series of healthy numbers for Slack in its first showing since going public in June with a direct listing. Calculated billings jumped 52% Y/Y in the second quarter to more than $174m, while the total of paid customers climbed 37% to more than 100,000.

However, operating expenses did treble to $479m due to greater investment in R&D, which played a role in net losses rising sharply from $32m a year ago to $360m in the latest period. Slack CEO Stewart Butterfield said he was still upbeat about growth ahead of the launch of new platform features such as Shared Channels.

The mixed nature of the report didn’t play well with investors after it released late on Wednesday and WORK shares were 13.3% down before Thursday’s open.

The latest $26.99 per share price means it is now less than a dollar up on the $26 IPO price from early summer.

Despite the retreat, DA Davidson analyst Rishi Jaluria offered an upbeat assessment.

Davidson said Slack, like many recent software IPOs, prefers to guide conservatively and that it is was still able to trump estimates despite the costs of a major outage, which are unlikely to have been factored in.

He added: “We like Slack for its near-ubiquitous nature, rapid growth, secular tailwinds, and large market opportunity, and our due diligence is very positive… Valuation, however, keeps us on the sidelines and we would advise investors to wait for a pullback before establishing a position.”

Research firms have yet to open up extensive coverage on Slack stock, but the current consensus among analysts is Hold.

The Vancouver-based company has five Buy ratings compared to seven at Hold and one at Sell. The average price target is $38.83.