Slack Technologies (WORK) is scheduled to report results of its first fiscal quarter after the market close on Thursday, June 4, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. GUIDANCE: Along with its Q4 earnings report, Slack guided to Q1 adjusted net loss per share of 7c-6c on a revenue of $185M-$188M. This compared to analyst estimates of a net loss per share of 7c and revenue of $188.37M at the time. Estimates for Q1 net loss per share have now risen to 6c, while estimates for revenue dropped slightly to $188.12M. The company also provided FY21 guidance of an adjusted net loss per share of 21c-19c on a revenue of $842M-$862M. The numbers compared to analyst estimates of a loss per share of 21c and a revenue of $854.45M at the time, which have now edged up to a loss per share of 20c and revenue of $860.26M.
2. PAID CUSTOMERS: Slack reported that it ended the previous fiscal year with over 110,000 paid customers, up 25% year-over-year, with 70 paid customers with annual recurring revenue over $1M. The company also reported its net dollar retention rate was 132%. “We finished the year with 110,000 paid customers and 893 customers spending more than $100,000 annually with Slack," said Allen Shim, CFO at Slack, along with the company's last quarterly report. "Slack has created a new category of enterprise software and companies large and small are choosing us to enable a better way of working, with unique-to-Slack features including shared channels and Workflow Builder. While we invest in innovation and delivering more value to our customers, we also are showing significant leverage and remain on track to hit our growth phase target of free cash flow positive.” Additionally, in a March regulatory filing, Slack announced that from February 1, 2020 to March 18, 2020, the company added approximately 7,000 new paid customers. In each of the third and fourth quarters of the fiscal year ended January 31, 2020, Slack added approximately 5,000 new paid customers per quarter.
3. COMPETITION: Slack competes with a rival workplace chat app by Microsoft (MSFT) called Teams. On Wednesday, the Wall Street Journal’s Aaron Tilley reported that rivals of Microsoft say the company used "sharp-elbowed" tactics to push Teams during the pandemic, deploying 50 staffers to work with NYC's school district to replace Zoom (ZM). "They want to kill us, as opposed to have a great product and make customers happy," Slack CEO Stewart Butterfield said. While Microsoft says it is focused on working with rather than inhibiting competitors, since the pandemic, "the world has changed," said Jared Spataro, corporate vice president for Microsoft 365, which encompasses Teams. "We intend to compete and win.” The report came amid Zoom Video's blowout first quarter earnings per share of 20c and revenue of $328.2M, both above consensus of 9c and $202.48M, respectively.
4. ANALYST VIEWS: In May, Baird analyst William Power raised the firm's price target on Slack Technologies to $36 from $24 and kept an Outperform rating on the shares. The analyst said he expects strong Q1 results along with guidance that supports upside to current estimates. He said its product is the right solution at the right time and its growth adjusted multiple stacks up well to other high growth UCC names. More recently, Stephens analyst Ryan MacWilliams raised the firm's price target on the stock to $37 from $32 and kept an Overweight rating on the shares. He believes Slack's value proposition has been "further accentuated" in the current work-from-home environment as the platform helps replace spontaneous office conversations and other "unstructured communication." However, MacWilliams added that he is concerned "investors are expecting too much" COVID-related growth in Q1, as Slack represents a long-term strategic shift for enterprise communications. Earlier this week, Cowen analyst J. Derrick Wood initiated coverage of Slack with an Outperform rating and $45 price target. The shift to remote work has given Slack a "major booster shot" to its market opportunity that will accelerate adoption and lift the company's total addressable market, Wood said. The market does not fully appreciate this as many investors are caught up on the Microsoft competitive threat overhang, added the analyst, who sees a "re-rate" in Slack shares following Thursday's results, which he expects to be strong.
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