Disruptions brought on by the novel coronavirus have put remote work facilitation platforms like Slack Technologies (NYSE:WORK) in the spotlight in 2020. And as more businesses come to see off-site working as a necessity, the bull case for Slack stock only seems to gain momentum.
However, not everyone’s convinced that Slack shares are worth owning now. In fact, one big-bank analyst recently took a verbal swipe at Slack.
Clearly, this analyst has clout as his downgrade of Slack stock and his price target reduction may have caused a price decline in that same stock.
As informed investors, we have to ask ourselves a crucial question. Are we going to invest based on analysts’ recommendations, or on our own due diligence and common sense?
Given that the remote-work trend is more than a passing fad, common sense would dictate that Slack shares should continue to post gains. Nevertheless, it’s important to give consideration to opposing viewpoints. So with that, let’s start with an analysis of the technical aspects of Slack stock.
A Closer Look at Slack Stock
Interestingly, Slack stock doesn’t give the appearance of an overpriced high flyer. Indeed, at $28.76 on Oct. 23, the share price wasn’t very much higher than its pre-coronavirus-crisis peak of $28.44 posted on Feb. 21.
What Slack stock traders should be aware of is the hard resistance point at $34. The bulls attempted to get the stock above that level on four different occasions since mid-June. Each and every time, they were met with rejection.
Momentum-focused traders might therefore choose to wait for a break above the $34 level prior to taking a long position. It will be even better if that breakout is accompanied by heavy trading volume.
On the other hand, contrarians and value-oriented investors shouldn’t mind that Slack stock hasn’t gone parabolic. If your objective is to buy low and sell high, then you might find the current Slack share price to be quite appealing.
Weiss Isn’t Nice
I can’t definitively prove that Slack stock shares fell sharply on Oct. 21 because Morgan Stanley analyst Keith Weiss issued a negative opinion on Slack. Still, it’s a strong possibility.
Suffice it to say that Weiss went hard on Slack. Specifically, he downgraded the stock from “equal weight” to “underweight.” Moreover, Weiss assigned Slack stock a price target of $27, thereby implying a decline in the share price as of the day Weiss issued that target.
So, what’s up with the downgrade and the pessimistic price target? Weiss seemed to be bothered by Slack stock being “up more than 20% in the last month,” but as I explained earlier, the share price really isn’t much higher than it was prior to the coronavirus crisis.
In any case, overvaluation doesn’t appear to be Weiss’s primary concern. Rather, the analyst seems to expect problems for Slack due to competition from Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Workspace, Microsoft (NASDAQ:MSFT) Teams as well as Zoom Video Communications’ (NASDAQ:ZM) video-conferencing platform.
Weighing the Competition
Weiss tends to pinpoint Microsoft as the chief rival, and I tend to concur with this assessment. In particular, the analyst feels that “the customers that have standardized on Microsoft Teams aren’t looking back—the product is working well and has become an important part of daily work for many customers.”
I’m not so convinced of this, and neither is Slack Chief Executive Stewart Butterfield. In a press release accompanying Slack’s second-quarter earnings data release, Butterfield reported outstanding user growth.
“We ended the quarter with more than 380,000 connected endpoints, up more than 200% year-over-year,” he said. “And now more than 52,000 paid customers use Connect, up 160% year-over-year.”
Connect is Slack’s extension of Channels, a platform that enables as many as 20 organizations to work together. It’s also worth mentioning that Slack’s paid customer base increased by 30% year-over-year to 130,000 during the second quarter.
Plus, the company’s quarterly calculated billings grew 25% year-over-year. These numbers indicate that there’s room for more than one remote work facilitator to grow. It’s a thriving niche and competitors can co-exist without wiping each other out.
The Bottom Line
Weiss’s concern about Slack’s rivals is already known and understood. Slack stock investors should rest assured that in an expansive and high-demand market, there’s room for more than one remote work facilitation platform.
And, given Slack’s impressive user base growth, there’s no need to fear market share encroachment from Microsoft or any other company.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
