In the early days of the novel coronavirus pandemic, Slack (NYSE:WORK) looked like a winner. Slack stock was one of the big beneficiaries of the work-from-home trend. By the start of June, WORK was flirting with $40, posting 73% growth since the start of the year. However, the company failed to maintain that momentum, even as other work-from-home tech stocks continued to soar.
At this point Slack stock is trading below $29 and was recently on the receiving end of a high profile analyst downgrade. Slack currently holds a ‘B’ rating in Portfolio Grader.
In its latest quarterly earnings, Slack reported revenue that was up 49% year-over-year. The 8,000 new paid customers represented a 30% YoY uptick. Despite beating on both top-line and bottom-line expectations, Slack stock was punished. That’s largely been the story of Slack since June. It’s going the opposite direction of other pandemic technology winners. The latest hit came after an analyst downgrade and WORK shares are now trading at April levels.
Deja Vu: Slack Stock Gets a Downgrade Based on Teams Fears
The most recent slide by WORK was triggered this week when Morgan Stanley analyst Keith Weiss issued a downgrade. Weiss cut his rating for Slack stock to “underweight.” His price target of $27 still has downside for WORK despite the negative market reaction.
Weiss is concerned that the demand for the work-from-home collaboration tool is going to harm Slack more than help it. He feels that with CIOs under pressure to adopt tools, Slack is failing to make a compelling case for adoption, with the result that competition — namely Microsoft’s (NASDAQ:MSFT) Teams — is snapping up the pandemic-fueled spending. And if companies standardize on Teams, they’re not going to be convinced to switch to Slack at a later date.
Does this story sound familiar? It should. Last November, Slack was facing a series of analyst downgrades for exactly the same reason: fears Teams would kill it. At that time, the news drove Slack stock to all-time lows.
The narrative has become so widespread that Slack Technologies CEO Stewart Butterfield has been spending considerable time with media outlets. He’s been making the case that Teams is more of a video app than a real Slack competitor, and that the competition is “unhealthily preoccupied with killing” Slack.
Bottom Line on Slack Stock
At this point, I have mixed feelings about Slack Technologies. The current situation is a result of the company being a victim of its own success. Slack popularized the concept of team-based collaboration just in time for the pandemic to force companies to adopt the technology. It is a similar story to video conferencing applications, which were suddenly thrust into the spotlight.
However, Slack’s success inevitably brought increased competition. The realization that the pandemic’s effects on remote working could well become permanent turned up the heat. In particular, enterprise customers that are already paying for productivity powerhouse Office are looking at its Teams collaboration app as a Slack alternative. The concern that Teams will ultimately kill Slack is what has firms like Morgan Stanley worried. The continued elusiveness of profitability is another issue.
However, weighed against that is Slack’s continued growth in user base (despite Teams), and its entrenched position. Remember, Slack is used by 65 of the Fortune 500 companies. That’s a pretty effective bragging point.
This one comes down to which side of the fence you’re on. If you feel that Teams and other collaboration tools from deep-pocketed tech giants are going to be the doom of Slack, then an investment makes no sense. At any price. However, if you feel that Slack Technologies will prevail, then the current price of Slack stock makes it an attractive opportunity.
On the date of publication, Louis Navellier owned shares of Microsoft (MSFT).
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the other securities mentioned in this article.
