This post was originally published on this site
Shares of Slack Technologies Inc. sank Wednesday toward a record selloff, as a host of analysts cut their targets after the workforce communications software company reported quarterly results that disappointed optimistic investors, again.
The stock WORK, -15.72% dropped 16% in midday trading toward a five-month low, which puts it on track for the biggest one-day decline since going public in June 2019. The previous record selloff was the 14.2% tumble on June 5, 2020, the day after first-quarter results were reported.
The company was seen by investors as a major beneficiary of the work-from-home (WFH) trend, which was sped up by the COVID-19 pandemic.
But with the stock down 38% from its June 3 record close of $39.90, it was up just 9.7% year to date, while the Nasdaq Composite Index COMP, +3.23% has run up 24% and the S&P 500 index SPX, +2.51% has gained 5.4%.
The company reported late Tuesday that it broke even in the second quarter, compared with expectations for a loss, on revenue that rose more than forecast. However, the company disappointed investors by missing billings expectations, and providing a third-quarter loss outlook that was just in line with forecasts.
Don’t miss: Slack breaks even unexpectedly, but stock still plummets in after-hours trading.
Analysts also raised concerns over a competitive threat from Microsoft Corp., despite assurances from the company that it continues to beat its competition at the same rate.
That prompted no less than 11 of the 26 analysts surveyed by FactSet to cut their stock price targets. The average target was now $31.27, down from $34.70 at the end of August.
Meanwhile, none of the analysts cut their ratings — the average is the equivalent of buy — as the average target is now 27% above current prices.
“With Slack being one of the poster childs for the WFH trend and the stock reflecting that optimism, last night’s results/guidance will be viewed as disappointing to those investors expecting a blowout quarter,” wrote Wedbush analyst Dan Ives in a note to clients.
Slack reported billings rose 25% to $218.2 million, but that was below the FactSet consensus of $226.3 million.
Ives kept his price target unchanged at $20, which is 19% below current levels. He is one of just four analysts that rate Slack the equivalent of sell. He said with Microsoft Teams aggressively looking to court its unparalleled installed base of customers, “this remains the main competitive threat” to Slack.
Mizuho’s Gregg Moskowitz reiterated his neutral rating while cutting his target by 14% to $25, citing the billings miss and “deceleration” on several fronts.
“Moreover, the primary issue in our view remains the competitive threat from Microsoft Teams, which we believe is continuing to gain momentum,” Moskowitz wrote.
Slack has filed an antitrust claim against Microsoft before the European Commission, alleging Microsoft bundled its Teams offering within its Office suite to gain competitive advantage.
On the post-earnings conference call with analysts, co-Founder and Chief Executive Stewart Butterfield said there was nothing that indicated increased competitive pressure.
“Win rates are the same,” Butterfield said, according to a FactSet transcript. “We’re now in quarter 14 of [competing] with Microsoft. We’ve won over and over again in Office 365-using customers.”
MKM Partners’ Rohit Kulkarni kept his rating at buy and his target at $37, saying he’s “patiently waiting” for the WFH build up.
Kulkarni said that while the stock’s reaction to the results “feels severe,” it does highlight the risks.
“While the company is adding a record number of customers, it is still facing headwinds from its exposure to COVID weak spots and {small and medium-size businesses],” Kulkarni wrote in a research note.
Therefore, he said investors should not expect billings to snap back “any time soon.”
