Slack (WORK) is a ‘New Paradigm for Decades to Come’ Says RV Capital

Jose Karlo Mari Tottoc
·4 min read

RV Capital, a hedge fund management company, published its fourth-quarter 2020 investor letter – a copy of which can be seen here. A return of 17.3% was recorded by the fund for the Q4 of 2020, above its DAX Performance benchmark that returned 3.5%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.

RV Capital, in their Q4 2020 investor letter said that they saw a spectacular value in Slack Technologies, Inc. (NYSE: WORK) and acquired a position in the company. Slack Technologies, Inc. is a proprietary business communication platform that currently has a $24.5 billion market cap. For the past 3 months, WORK delivered a 48.30% return and settled at $42.65 per share at the closing of January 22nd.

Here is what RV Capital has to say about Slack Technologies, Inc. in their investor letter:

"We became co-owners in Slack, a channels-based communication service for businesses. In an unexpected twist, a few months later it was acquired by Salesforce.com at roughly a 50% premium to what we had paid.

In accordance with my usual practice, I was planning on writing about our investment in Slack. By laying out my investment hypothesis at the onset of an investment, I hope to enable investors to assess in hindsight whether it worked (or not) because of a plausible investment philosophy consistently applied. Given that Slack has effectively already played out as an investment, this rationale has gone. After all, anyone can make a successful investment decision look smart after the fact.

There is one element of my Slack investment thesis that I would like to lay out as it neatly illustrates an idea in my first-half letter and has not yet played out. I wrote then that I wanted to invest more in “early-stage, listed companies”. What I meant by this are companies whose moat is not yet fully developed, but not so undeveloped that it is difficult to say if they will ever have one. I described early-stage companies as possessing:

The kernel of an idea (however unformed), which - if you squint - you can imagine creating a new paradigm in decades to come.

Slack was the type of company I had in mind when I wrote this. Its moat in its core business of providing channels-based communication within companies is well developed. It benefits from a network effect (the more employees on Slack, the higher the value they derive from it), a broad developer ecosystem (thousands of integrations have been built for Slack) and switching costs (Slack becomes tightly interwoven into a company’s workflow through said integrations).

What really got me excited – the new paradigm – is “Slack Connect”. Connect is a feature that allows companies to extend Slack beyond their own organisation to external partners. Connect has not yet achieved viral growth – the moat is not yet developed."

fotoinfot/Shutterstock.com

Last December 2020, we published an article telling that Slack Technologies, Inc. (NYSE: WORK) was in 20 hedge fund portfolios. Its all time high statistics is 37. WORK delivered a huge 107.14% return in the past 12 months.

As of September 2020, RV Capital had a 557K share position in WORK that amounted to $14.9 million. However, our calculations showed that Slack Technologies, Inc. (NYSE: WORK) does not belong to the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.

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