Shares of Slack Technologies (WORK) ended lower on Thursday, recovering some of the losses the stock suffered after the company reported its first earnings results as a public company Wednesday.
Despite topping analysts’ estimates on the top and bottom lines, Slack disappointed investors with a weaker-than-expected forecast for the third quarter. The company’s Q3 2020 guidance laid out expectations for a loss of between $0.08 and $0.09 a share — slightly below analysts’ expectations of $0.07.
Among issues that impacted results cited by the company was outages that impacted users. In its earnings calls with investors, Slack CFO Allen Shim said revenue growth came in above the high end of guidance, despite an $8 million one-time revenue headwind from credits issued related to “service level disruption in the quarter.”
On this, Citi analyst Walter Pritchard told investors he spoke with Shim and Jesse Hulsing, VP of Investor Relations, who told him that the financial impact of another “service-level disruption” was pretty low going forward.
Citi has a $39 1-year price target on the stock.
“We believe that these future valuation levels are justified based on Slack’s long-term growth profile (Y/Y revenue growth trending to high teens by FY2028) and operating margin and the current software industry valuation levels,” wrote Pritchard.
Analysts at Credit Suisse, led by Brad Zelnick, believe a trailing twelve-month billings growth of +65% y/y suggests strong underlying growth. They kept their Neutral rating and lowered their price target to $35.
“Several large wins at Office 365 customers makes us feel incrementally better about Slack’s ability to compete against Teams in the Office 365 customer base,” they wrote.
Similarly, Morgan Stanley analysts led by Keith Weiss see upside in the stock, even if Slack is “a clear #2 share leader against the large market opportunity.” The firm believes that Slack can succeed against its main competitor, Microsoft (MSFT).
“In our base case model there remains plenty of market opportunity for Slack to grow into a multi-billion revenue run-rate company, even with Microsoft garnering a dominant market share,” the analysts wrote.
“Slack has positioned itself as the innovation leader in the communication and collaborative applications market, with a well underpenetrated opportunity as large as $30+ billion.”
Pamela Granda is a producer at Yahoo Finance.