There’s Nothing Terribly Unique About Slack Stock

Slack (NYSE:WORK) has been considered a pandemic winner. As businesses had to operate remotely, they had a powerful incentive to use the company’s collaboration software. However, I think the narrative of Slack stock being a remote work play is a bit overdone.

Slack (WORK) logo on a window.
Source: Shutterstock

Slack is ideal for employees to connect, share files, and otherwise collaborate while working remotely. But the software wasn’t created with the idea of work-from-home becoming permanent. At its core, Slack is a play on cloud computing. In short, it solves a storage problem for companies. Large files now have a way of being shared without having them take up space on internal servers.

That’s a benefit that many companies were realizing before work-from-home became a necessity instead of a preference. But it’s also the reason that investors have to make sure they are buying Slack stock for the right reasons. It’s about what it allows businesses to do, not where they do it from.

A Distinction Without a Difference?

Maybe I’m splitting hairs. In a recent interview to Fast Company, Slack’s chief executive officer and co-founder Stewart Butterfield provided a bullish outlook for the future of remote work.

There’s a market force at play. So I don’t know that individual companies are going to be able to opt out and say, ‘Our employees have to come into the office.’

Being objective, I would expect Butterfield to be of that opinion. First, it’s clear that Slack is committed to remote work. Butterfield offered that more than 20% of Slack’s workforce has been on-boarded since the pandemic began. Some staff has moved. It’s clear that the company is all in on remote work.

Butterfield may have also been attempting to reassure investors. Slack stock dropped over 10% the day after the company reported slowing revenue growth in its most recent quarter. And, the company said the third and fourth quarter may bring more of the same.

Why Is Slack Stock Rising?

Since the post-earnings drop, Slack is on the rise again. And the reason is because of new tools the company is offering. And all of these, perhaps not coincidentally, are making the app a bit more like social media. An asynchronous video feature will give users the ability to create short-form videos to share at the time of their choosing. Butterfield sees this tool as a supplement to traditional video conferencing.

Another tool is what the company is calling “always-available” audio to promote spontaneous interactions among colleagues. And the company is also planning to allow users to create private links that allow users from one organization to send direct messages to someone in another organization.

What is the significance of this? This is a highly competitive field and there’s really no way for Slack to create a moat. However, they can try to become “sticky” by adding features that address consumer complaints or, as it seems in this case, to create features consumers didn’t know they needed. And that can be a way to get more revenue from existing customers.

What to Make of Microsoft?

The largest of Slack’s competitors is Microsoft (NASDAQ:MSFT) Teams. And there is little doubt that Microsoft is taking direct aim at Slack. However, at least for now, I view this as a PC versus Mac decision. There will be companies that prefer Slack. There will be companies that prefer Microsoft. And switching will be uncommon.

That’s the good news. The bad news is that Microsoft can afford for Teams to operate at a loss a lot longer than Slack can. And investors must reconcile the fact that Slack is not yet profitable. Although they did become free cash flow (FCF) positive for the last two quarters and expect to be FCF breakeven at the end of the year.

Ask Yourself These Questions

If businesses return to the office in earnest, does the business case for Slack really change? If you’re a business owner, will you stop using Slack when you’re back in the office? If you’re an employee, will you want to stop using Slack altogether?

I believe the answers are no, no, and no. But that’s just a hunch. We won’t know until employees returning to the office in a meaningful way becomes a viable option. Until then, Slack stock looks to be priced about right. Because at the end of the day, Slack is about the way people work, not where they work. And that makes the stock feel a little less exciting.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/slack-stock-needs-more-than-remote-work-catalyst/.

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