Workplace collaboration tools have gained momentum from the stay-at-home trade this year, but Slack (NYSE:WORK) is not among the big winners of this trend. While companies that enhance remote work experience have seen increased interest from investors, Slack stock hasn’t seen as much love.
In its previous quarter, the company’s revenue increased by 50% — certainly nothing to sneeze at — but this was only 7% higher than the company’s forecast. Additionally, guidance for the year failed to impress investors, as it is a sign of slow growth.
The results, while somewhat encouraging, were also a far cry from tech companies like Zoom (NASDAQ:ZOOM) that reported stellar earnings for the same period. Slack’s mediocre earnings led the stock to slip by 13% premarket following earnings.
Slack stock has fallen to the $30’s since hitting a record around $40 after going public, so it would be best to hold off on this stock for now. However, the company is expected to report quarterly earnings tonight, which could swing the pendulum either way.
The Street’s Expectations on Slack Stock
While the last few months have been lackluster for Slack stock, the Street has some big expectations ahead of earnings next week. The company is expected to report earnings per share (EPS) of -3 cents, compared to -14 cents in the year-ago quarter. Revenue is also estimated to be higher at $208.33 million, a 43.71% increase year over year.
In short, analysts remain cautiously optimistic about Slack’s quarterly earnings. I use the term “cautious” because Slack’s results have been a string of disappointments since going public in 2019. While the industry has seen a 19% increase in share value this year, WORK stock has fallen 23% since Q1.
With workplace collaboration tools at the forefront of the remote-working environment, investors were expecting some blowout results from Slack this year. But the company was unable to match up to peers like Zoom and Microsoft (NASDAQ:MSFT), whose competing products were a better alternative to Slack’s communication tools. The company even filed a complaint against Microsoft for pairing Teams to Office 360 Suite.
To add to its troubles, Slack is also impacted by shrinking corporate technology budgets that have left smaller tech companies standing on their last leg. Earlier this year, Slack withdrew its billings forecast after it was forced to negotiate flexible billing contracts with customers to keep them on board.
When looking at WORK stock as a single entity, a 50% increase in revenue is impressive but the problem lies in the company’s industry performance. With Microsoft and Zoom reporting record-breaking earnings this year, Slack’s results seem dim in comparison. Things may turn around for the company on Tuesday but for now, it’s just a waiting game.
Work From Home Didn’t Benefit Everyone
As work from home became the norm, tech companies were well-positioned to make some big gains in the months that followed. However, if there was one thing the pandemic revealed, it’s that not all tech companies are created equal.
Video conferencing company Zoom saw some unprecedented gains in the last few months, and Microsoft Teams and Google’s cloud systems were not far behind. Unfortunately, Slack didn’t see the same big uptick in users like its peers (though it did hit its own record highs), partly because the company’s sole purpose is to enhance communication, not act as a replacement. This was coupled with stiff competition from tech giants like Microsoft that came up with its communication tool and edged Slack out of the spotlight.
The company has also earned a bad rep since its inception. In its early days Slack was embraced for its ability to improve efficiency in communication but soon became a place for employees to air grievances. The casual nature of interactions with emojis and funny videos led to more informal use of the platform. Some companies saw increased instances of workplace bullying in the platform, and according to the article, “Some companies say they have installed tracking tools to police online channels for signs of bullying.”
The Bottom Line On Slack
Slack may not have benefited from the same growth as its competitors this year, but it’s still a stock worth having on your radar. The company is still smaller than its tech peers, meaning there is still a lot of potential to grow and add more customers in the coming years.
Wall Street’s high expectations for Slack as we approach its earnings date may instill some confidence in investors but it’s worth waiting to see the company’s results on Tuesday before making a decision on WORK stock.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance.