Market Overview

Sell-Side Remains Cautions On Slack Following Q3 Earnings Beat

Sell-Side Remains Cautions On Slack Following Q3 Earnings Beat

Slack Technologies Inc (NYSE: WORK) reported third-quarter revenue and earnings beats on Wednesday. Slack also guided for fourth-quarter revenue of between $172 million and $174 million, slightly above consensus analyst expectations of $172.4 million. However, Slack also guided for a fourth-quarter per-share loss of between 6 cents and 7 cents, slightly worse than analyst estimates of a 6-cent loss.

Slack shares have tanked more than 42% since the stock began trading back in June and are now priced well below the company’s $26 IPO price. Increasing competition from Microsoft Corporation (NASDAQ: MSFT) Teams has been one of the primary concerns weighing on investor sentiment.

Several analysts have weighed in on Slack following its third-quarter report. Here’s a sampling of what they’ve had to say.

Plenty For Bulls And Bears

Morgan Stanley analyst Keith Weiss said Slack’s third-quarter report had plenty for both bulls and bears.

“While a better than feared quarter may provide a boost to shares, without topline numbers moving higher and the debate still ongoing around the durability of growth, we see a significant move higher for WORK as unlikely in the near-term,” Weiss wrote in a note.

Credit Suisse analyst Brad Zelnick said Slack is focusing on employee engagement rather than daily active user growth.

“Slack reported solid F3Q results with revenue and billings ahead of expectations, though F4Q billings guidance at 39% y/y (41% y/y normalized for service credits) fell below Street 43%,” Zelnick wrote.

Fending Off Competition

MKM Partners analyst Rohit Kulkarni said Slack’s earnings beat demonstrates the business is resilient despite the stock’s headline risk.

“While bears might point toward slowdown in billings growth, we think the Q/Q uptick in RPO (contracts > 1 year in length) provides greater evidence of long-term visibility,” Kulkarni wrote.

D.A. Davidson analyst Rishi Jaluria said 67% growth in $100,000-plus customers and 25% of paid customers using Shared Channels are positive developments for Slack.

“[CEO Stewart] Butterfield highlighted that Teams is marketed as a Slack competitor, but is not truly one, nor is it a ‘good enough’ solution, as evidenced by the fact that 70% of Slack's $1M+ customers are also Office 365 customers,” Jaluria wrote.

Ratings And Price Targets

  • Morgan Stanley has an Equal-Weight rating and $28 target.
  • Credit Suisse has a Neutral rating and $27 target.
  • MKM Partners has a Buy rating and $28 target.
  • D.A. Davidson has a Neutral rating and $21 target.

Benzinga’s Take

Slack has been one of the worst-performing among a class of disappointing high-profile tech IPOs in 2019. The $11 billion Slack will continue to face intense competition from the $1 trillion Microsoft, which outguns Slack in size and resources.

Slack's stock traded around $21.09 per share at time of publication.

Do you agree with this take? Email with your thoughts.

Related Links:

Wall Street Weighs In On Workday's Q3 Earnings

Wall Street Is As Bullish As Ever On Salesforce

Latest Ratings for WORK

Dec 2020Morgan StanleyUpgradesUnderweightEqual-Weight
Dec 2020Stephens & Co.DowngradesOverweightEqual-Weight
Dec 2020Credit SuisseMaintainsNeutral

View More Analyst Ratings for WORK
View the Latest Analyst Ratings


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