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Buy Surging Coronavirus Stay-at-Home Stock Slack (WORK) Before Earnings?

Benjamin Rains

Slack Technologies WORK shares have surged over 65% in 2020, against its industry’s 5% decline. The work-focused communications company also saw its stock price jump another 6% on Monday. This means that investors might expect the coronavirus and stay-at-home standout’s Q1 financial results, due out on Thursday, June 4, to impress Wall Street.

Beyond Email…

Slack is a cloud-based work communications platform that aims to bolster productivity in the digital and work-remotely age. The firm allows users to send messages, images, documents, and more to groups or individuals. WORK’s tagline is “one platform for your team and your work” and its offerings compete against giants such as Microsoft MSFT and Google GOOGL.

Slack topped our fourth quarter earnings estimate in March and its fiscal 2020 revenue jumped 57% to $630.4 million. The company’s ability to attract larger customers helped drive sales growth. WORK ended the year with 70 enterprise customers “spending more than $1 million annually on Slack,” which marked an 80% jump from the year-ago period.

Overall, Slack ended its fiscal 2020 with 110,000 paid customers and 893 customers spending over $100,000 annually, up 55%. “As the shift from email to channel-based messaging platforms continues, the largest companies around the world are choosing to standardize on Slack because of our enterprise-grade scalability, security, open platform, ease-of-use and innovative roadmap,” CEO Stewart Butterfield said in prepared Q1 remarks.

 

 

 

 

 

 

 

 

Other Fundamentals

Slack went public in June 2019 and struggled early on, alongside the likes of Lyft LYFT and Uber UBER. Wall Street was worried that Slack wouldn’t be able to attract enough larger customers and compete against some of the biggest tech companies in the world. But the company has been able to add bigger firms, and Slack stock has been on a tear in 2020.

WORK shares have climbed 65% in 2020 and 85% since late January, as Wall Street dove into stocks that could grow during the coronavirus economic downturn. In fact, Slack stock has soared nearly 120% since mid-March to outpace fellow stay-at-home standout Zoom’s ZM 90%.

WORK closed regular trading Monday at $37.18 a share. This came in not too far off from its closing price of $38.62 on June 20, 2019—the day it went public—and marked the first time it closed above $37 a share since June 28. Despite trading near its highs, Slack’s valuation is solid, trading at 20.5X forward 12-month sales vs. its highs of 28.1X.

Bottom Line

Our Zacks estimates call for Slack’s first quarter sales to jump 38.4% to reach $186.5 million. This woudl mark a slowdown against Q4’s 49% expansion, but come on top of the year-ago period’s 67% growth.

Peeking ahead, its fiscal 2021 revenue is projected to climb roughly 36% to $856.3 million, with FY22 expected to come in another 33% higher at $1.14 billion. Alongside this expected revenue growth, Slack’s adjusted losses are projected to shrink, with Q1 expected to come in at -$0.07 a share vs. the prior-year quarter’s -$0.26.

Slack’s earnings estimates have remained unchanged recently to help it earn a Zacks Rank #3 (Hold). That said, WORK has topped our quarterly earnings estimate by an average of 46% in the trailing three quarters.

Playing Slack for near-term gains around earnings is risky—as it always is. And WORK stock could fall even if it’s able to impress, given its massive run. Yet, longer-term investors might want to consider Slack stock as a bet on the future of business-based communication.

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