(Bloomberg) — Slack Technologies Inc. analysts said the company’s billings forecast for the full year came in lower-than-expected, and disappointed investors looking for a bump from the virus-driven surge in people working from home.
Shares of the software maker plunged as much as 20% in New York Friday, their biggest intraday loss and lowest level since the company’s June 2019 trading debut.
Slack is among the latest examples of companies that have looked to temper expectations amid the global spread of coronavirus. It also is facing stronger competition from Microsoft Corp.’s rival Teams product.
“No investor doubts Slack’s cult-like product portfolio and impressive growth trajectory,” Wedbush analyst Daniel Ives said in a note. “The issue comes down to its long-term growth profile” with Microsoft CEO Satya Nadella “laser-focused on its Teams and the Office 365 opportunity.”
Here’s what analysts are saying:
Morgan Stanley, Keith Weiss
Slack “demonstrated solid execution and enterprise momentum” in the fourth quarter, but its fiscal 2021 targets “fell short of investors’ expectations of Slack as a potential Covid beneficiary.”
“While management noted customers are turning to Slack to help manage the work-from-home environment, it is too early to garner confidence around any material financial impacts from this increased usage.”
Additionally, “there is risk around converting pipeline into closed deals,” given Slack’s decision to pause travel for its sales force, “disruption among customers and hesitancy around moving forward with large deals during this period of macro uncertainty.”
The company’s “cautious guidance is likely prudent” given the macro outlook.
Rates equal-weight, cut price target to $21 from $28.
Wedbush, Daniel Ives
Despite the company’s “good January quarter,” its softer-than-expected billings guidance for fiscal 2021 “speaks to some tough times ahead” and likely “will be a shocker to the bull thesis on the name.”
Meanwhile, potential competition from Microsoft could impede “the Slack growth train” in this year and onward.
“We continue to believe this stock has more room to fall given the valuation and growth profile with the Microsoft overhang a looming issue for investors.”
Rates underperform, with a price target of $14.
William Blair, Bhavan Suri
Sees much of the shortfall between Slack’s billings forecast and Street expectations coming from “conservatism in guidance given the heightened levels of uncertainty caused by the rise of COVID-19.”
Noted that the company “has become much more weighted to the enterprise over the past few years, and with sales reps out of the field, closing deals can be particularly challenging.”
Revenue impact from the surge of remote workers “is still unclear at this point, but converting these users to paid plans is likely to play out over a longer time horizon.”
Meanwhile, the company’s “head-to-head wins against Teams” in the quarter and a Teams displacement at a Fortune 100 retailer bode well for Slack.
Rates outperform.
What Bloomberg Intelligence Says
“Slack’s billings view of 29% for its fiscal 2021, about 700 bps below consensus, looks conservative amid the high interest in cloud-based collaboration software from enterprise customers due to the coronavirus outbreak. While accelerated adoption of its Shared Channels product by about 89% of its top customers is encouraging, a slight decline in the company’s net retention rate suggests competition from Microsoft Teams could be limiting order sizes.”
–Analyst Mandeep Singh–Click here for the research
To contact the reporter on this story: Andres Guerra Luz in New York at [email protected]
To contact the editors responsible for this story: Catherine Larkin at [email protected], Will Daley, Lisa Wolfson
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