09 September 2020

Slack’s Stock Slumps Despite Upbeat Earnings

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What’s happening: Shares of Slack Technologies fell sharply in extended trading on Tuesday despite the software maker reporting stronger-than-expected sales and earnings for its fiscal second quarter.

What happened: Slack is among the key beneficiaries of a secular shift to the WFH (work from home) model amid the pandemic, as it provides communication and collaboration tools to keep a remote team productive.

However, Slack’s target market comprises mainly of SMEs (small and medium enterprises), which have been severely hurt by the pandemic-induced global economic contraction.

How were the results: The San Francisco, California-based company reported sales growth for the quarter and breakeven profits.

  • Revenues grew to $215.9 million, from $145 million in the same quarter last year, surpassing the consensus estimate of $209.1 million.
  • Slack recorded a quarterly loss of $74.8 million, or 13 cents per share, versus a loss of 98 cents per share in the year-ago quarter.
  • Excluding onetime items, the company managed to breakeven, versus an adjusted loss of 14 cents per share last year. The figure also beat market expectations of a loss of 3 cents per share.

Why it matters: Slack provides a workflow platform to assign tasks to team members and the ability to set up different chatrooms for different teams for effective communication. With the coronavirus outbreak, the company was quick to introduce features like integrating third-party apps like Zoom and Google Drive.

Slack has a massive customer base of 130,000 firms. However, they comprise mainly of SMEs that subscribe to its software services on a monthly basis. These businesses have been severely impacted by the covid-19-led crisis, resulting in lower-than-expected billings for Slack.

Although billings rose 25% to $218.2 million, they missed the consensus view of $232.9 million.

“We’re landing with more customers, but the time it takes for that growth to show up in expansion will take some time to play out…Given this economic backdrop, you are seeing some tighter budgets and a more cautious IT buyer right now,” Slack’s CFO Allen Shim said during the earnings call.

Slack has also been facing stiff competition from Microsoft’s Teams, which gained tremendous popularity during the covid-19 lockdowns.

Management projected revenues between $222 million and $225 million and an adjusted loss of 5 to 6 cents per share for the fiscal third quarter, broadly in-line with expectations.

Slack raised its annual projections slightly to revenues between $870 million and $876 million and an adjusted loss of 13 to 14 cents per share.

How shares responded: Slack’s stock tumbled 18.7% to $23.83 in after-hours trading following the release of quarterly results. The stock has gained 30% year to date, versus a 3% gain in the S&P 500.

What to watch: Slack has been making efforts to target larger companies with huge teams. Investors will keep an eye on the company’s progress on this front. Markets will also look out for news of how SMEs are coping in the current environment.

The Markets Today

     

US stocks will be in focus today, after falling sharply in the previous session.

Context: US stocks tumbled to a four-week low on Tuesday, declining for a third straight session, led by technology stocks.

Details: Investors have been on a selling spree, triggered by analyst comments of tech stocks being highly overvalued. The sell-off has been supported by investor concerns around rising US-China tensions and the economy’s sluggish recovery.

Tuesday’s sell-off was driven by the tech giants, including Apple, Microsoft, Facebook, Alphabet and Amazon, all of which had recently surged to record-highs.

Shares of Tesla tumbled more than 21% on Tuesday, marking a record single-day decline for the EV maker. The stock received a blow with the company missing out on being included in the rebalancing of the S&P 500 index.

Meanwhile, Nikola’s shares jumped around 41% after the company announced a strategic partnership with General Motors Co.

The Dow Jones index shed 632.42 points to close at 27,500.89 on Tuesday, with the S&P 500 falling 2.8% to 3,331.84. The Nasdaq 100 dipped 4.1% to reach 10,847.69. The tech-laden index has lost 10% over the last three sessions, after notching a record close of 12,056.44 on September 2.

What to watch: Traders await the JOLTs job openings data from the US. The number of job openings, which rose by 518,000 to 5.9 million in June, is expected to increase to 6 million in July.

Markets will continue to monitor the daily covid-19 numbers, with total cases surging to 6.3 million in the US.

Other Markets: European indices closed lower on Tuesday, with the FTSE 100, French 40 and Dax 30 index down by 0.1%, 1.6% and 1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s inflation rate, Brazil’s inflation rate, Canada’s housing starts, Russia’s GDP growth, Bank of Canada’s interest rate decision as well as the US MBA mortgage applications, Redbook index and API’s crude oil stockpiles.

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