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Slack (WORK) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Slack Technologies, Inc. WORK will report second-quarter results of fiscal 2020 on Sep 4, after the bell.

Shares of the company have declined 19.4% since it went public in June 2019, compared with the 9.4% decline of the industry it belongs to.

Factors at Play

Financials indicate that the tech company is in growth phase. Slack generated $400.6 million of revenues in fiscal 2019, which were up over 80% from 2018. This allowed it to lower its losses from $181.0 million in 2018 to $140.7 million in fiscal 2019.The cash burn rate of $41.1 million in the year suggests that balance sheet cash may be enough to take the company to profitability, especially given the strong revenue generating capability. In the first quarter of fiscal 2020, the company generated revenues of $134.8 million that grew 67% year over year. The cash burn rate was $14.1 million.

Slack’s user ecosystem appears healthy. The company has more than 10 million daily active users who collectively spend more than 50 million hours per week. While this user count pales in comparison to service providers like Netflix or Spotify, the number is growing quickly with high adoption rates across various industries and geographies. The number of large enterprise customers is growing at the fastest rate. This is particularly encouraging because wins from this group will bring in a substantially higher number of users, and therefore, revenue.

What Our Model Says

A company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if the companies are witnessing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Slack has an Earnings ESP of 0.00% and a Zacks Rank #3, a combination that makes surprise prediction difficult.

Stocks to Consider

Some better-ranked stocks in the broader Zacks Business Services sector include Fiserv FISV, Booz Allen Hamilton BAH and Charles River Associates CRAI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS (three to five years) growth rate for Fiserv, Booz Allen and Charles River is 12%, 13% and 13%, respectively.

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