Slack drops as revenue growth stays constant despite coronavirus

Slack shares fell as much as 16% in extended trading on Tuesday after the team communications software company reported fiscal second-quarter results and full-year guidance that exceeded analysts’ expectations. Although it beat on full-year guidance, revenue growth in the quarter, which ended on July 31, came in below 50% on an annualized basis, in line with the two previous quarters, and is not showing a huge spike like Zoom, disappointing investors.

Here’s how the company did:

• Earnings: 0 cents per share (break-even), adjusted, vs. loss of 3 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $215.9 million, vs. $209.1 million as expected by analysts, according to Refinitiv.

The company reported a net loss of $73 million, significant progress from the year-ago quarter, when it lost $360 million. Slack’s entire quarter saw an impact from the coronavirus pandemic, as people became more reliant on online tools such as Slack and Zoom because of restrictions on gathering in offices and schools. Revenue grew 50% in the previous quarter, when shelter in place applied for about half of the period, and 49% before that.

Slack did not disclose a new number of daily active users; the company last said it had 12 million in October. In a conference call with reporters CEO Stewart Butterfield said what matters is paying customers. The company said it had over 130,000 paying customers in the quarter, up 30% year over year and above the FactSet consensus estimate of 128,000.

In the quarter Slack announced the acquisition of Rimeto, a start-up with software that companies can use to show profiles of their workers. Slack also said it had filed a complaint against Microsoft with the European Commission, claiming Microsoft, which provides the Teams communication app in its Office 365 productivity-software bundle, engaged in anticompetitive behavior. The European Commission has previously fined Microsoft for not complying with an agreement related to giving people the ability to choose a web browser and ordered the company to license certain Windows technology to competitors.

“We view the complaint as a real one, but also believe it is unlikely to result in Microsoft being forced to only sell Teams as a standalone product,” Rishi Jaluria and Philip Rigby of DA Davidson, which has the equivalent of a hold rating on Slack stock, wrote in a note distributed to clients on July 22. “That said, it could result in fines and Microsoft selling a version of Office without Teams, based on precedent set by the EU’s fines and actions against Microsoft.” 

Slack did not see a year-over-year change in its win rate against Microsoft Teams in the quarter, Allen Shim, Slack’s chief financial officer, said on the call with reporters. A majority of customers spending over $1 million in annual recurring revenue also use Office 365, Shim said.

With respect to guidance, Slack predicted a fiscal third-quarter adjusted loss of 6 cents to 5 cents per share on $222 million to $225 million in revenue. Analysts surveyed by Refinitiv had been looking for an adjusted loss of 5 cents per share and $223.7 million in revenue.

For the 2021 fiscal year Slack said it expects an adjusted loss of 14 cents to 13 cents per share and revenue of $870 million to $876 million. Analysts polled by Refinitiv had expected an adjusted loss of 16 cents per share, along with $872.3 million in revenue.

Shares of Slack are up about 31% since the start of the year, while the S&P 500 is up 3%.

Executives will discuss the results with analysts on a conference call at 5 p.m. Eastern time.

This is breaking news. Please check back for updates.

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