Earnings

Slack share price: is there room left to run ahead of Q4 earnings?

Ahead of Q4 earnings on 12 March, Slack’s [WORK] share price is one of the few that seems to have a degree of immunity against the coronavirus outbreak.

The share price had gained by over 23% from the start of the year to 5 March, and while it lost 7.8% following news that the virus had expanded across Italy, the share price is still up around 9% year-to-date.

Slack’s share price surge has been linked to the news that large companies such as Uber and IBM are currently rolling out the messaging service to their employees – although it is understood that IBM has been working with the company in a smaller capacity since 2014. Despite recent wins, however, Slack’s share price is 33% off the $38.50 IPO price it debuted at in summer 2019.

 

 

 

With all this considered, is Slack’s share price likely to rally on Q4 results?

 

Revenue is on the rise, but caution persists

For Q3 results, Slack beat revenue and earnings expectations. It posted revenue of $168.7m, compared to $156m expected according to Refinitiv, and an earnings loss of 2 cents per share, compared to the 8 cents expected.

While sales climbed 60% from $105.6m a year earlier, investors remained cautious about the company’s losses. This was reflected in Slack’s share price, which initially jumped by 2% on the report, before later falling by around 6%.

Despite some losses, Slack largely has its finances in check and will be looking to hit profitability by 2022. However, investors are concerned about the company’s potential for growth in the face of competition from Microsoft, which launched a similar product in 2017 called Teams. Microsoft’s service currently has 20 million daily active users compared to Slack’s 12 million.

12million

Slacks' daily active users - compared with Microsoft's 20 million

  

What’s expected in Q4?

Slack is looking at another revenue jump for Q4. The company forecasts revenues of $172-$174m, compared to the $172.9m estimated by analysts at Refinitiv. Losses remain a concern for investors as the company said its earnings loss will be between 6 cents and 7 cents a share, while analysts were projecting a loss of 6 cents.

Total revenue for the fiscal full year is expected to come in between $621m and $623m, according to Slack executives, which would represent a year-over-year growth of 55% to 56%.

Zacks’ forecasts that Slack’s Q4 sales are set to come in at $173.1m – representing top-line growth of 42%. Slack is expected to post an adjusted quarterly loss of 6 cents a share, according to the firm. Full-year revenue is expected to be at $621.7m alongside an adjusted full-year loss of 33 cents per share.

 

Market Cap$13.793bn
EPS (TTM)-1.77
Operating Margin (TTM)-94.40%
Quarterly Revenue Growth (YoY)59.70%

Slack share price vitals, Yahoo Finance, 11 March 2020

 

A stock to bet on during coronavirus outbreak?

Writing for Zacks, Benjamin Rains argues that Slack could be a buy during the coronavirus outbreak, as the stock profits amid calls for people to work from home.

“Slack is still firmly a growth play,” he says. “But the coronavirus highlights why Slack’s cloud-focused, work-based communication tech is perfect for our work-remotely world, which is likely to gain momentum for years to come. And as coronavirus cases start to climb throughout the US and the rest of the world, more people are likely to find themselves working remotely if they can.”

“...the coronavirus highlights why Slack’s cloud-focused, work-based communication tech is perfect for our work-remotely world, which is likely to gain momentum for years to come. And as coronavirus cases start to climb throughout the US and the rest of the world, more people are likely to find themselves working remotely if they can” - Benjamin Rains

 

Zacks currently rates Slack a hold, and Rains warns that some might want to wait for the company to report before jumping into the stock.

 

Outlook

Slack has benefitted from a recent slew of positive analyst ratings. On 28 January, Wells Fargo analyst Michael Turrin put a $30 share price target on the company and gave it an overweight rating. In early February, RBC Capital analyst Alex Zukin began coverage of the stock with another outperform rating.

In a note, Zukin said: “We see Slack as having a leading brand, differentiated technology, and strong tailwinds from a growing workplace collaboration market.”

“We see Slack as having a leading brand, differentiated technology, and strong tailwinds from a growing workplace collaboration market” - RBC Capital analyst Alex Zukin

 

He added that he sees “an opportunity for the company to have durable, multiyear 30%+ growth.”

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