beat fiscal second-quarter earnings and revenue expectations, but its shares sank on the report.
Slack shares (ticker: WORK) had risen 30% in 2020 through Tuesday’s close. With the stock down 15.5% to $24.78 Wednesday afternoon, its year-to-date jump pared back to 10.2%.
Much of that run had to do with excitement for companies that appear to benefit from work-from-home trends that kicked into overdrive amid the pandemic. On the other hand, the pandemic has caused some headwinds, like hits to potential customers, especially those in the travel industry.
Mizuho Securities analyst Gregg Moskowitz lowered his price target to $25 from $29 and maintained a Neutral rating in a note on Wednesday.
While paid net additions were in line with his expectations, the company saw a deceleration on several fronts as the benefits of trends toward work-from-home amid the pandemic showed signs of waning. He pointed to such a slowdown in growth for net revenue retention and net new customers of greater than of $100,000 in annual recurring revenue.
“Moreover, the primary issue in our view remains the competitive threat from Microsoft Teams, which we believe is continuing to gain momentum,” Moskowitz added.
Canaccord Genuity analyst David Hynes Jr. wrote in a note on Tuesday that while there was good and bad news in the report, “what we can definitively say is that Slack’s business did not get 20% worse over the last 90 days,” as suggested by the stock’s double-digit drop in after-market trading the night of the report.
“If we stepped back and looked at Slack with a clean slate, we’d see a business with above average growth that’s crossing into sustainable FCF profitability with a stock that’s now trading at a below-sector-average multiple,” he wrote.
He lowered his price target to $32 from $38, but maintained a Buy rating. He added that new paid customers are a sign of sustainable improvement, so there’s a disconnect between the stock’s drop and the report. “So we think growth investors can use the weakness in WORK to add to positions,” he said.
Oppenheimer analyst Ittai Kidron maintained a Perform rating, noting that the results reflect puts and takes like strong new customer net additions balanced by slower expansion, higher churn, and a drop in net retention rate. Kidron does feel the worst of Covid-19 may be behind the company.
“Nonetheless, we believe caution is still warranted as recessionary headwinds (layoffs, slower hiring, IT budgets scrutinized) could still take multiple quarters to reverse and limit expansion activity near term,” Kidron added.
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