Slack's Growth - No Laggard

Summary

• Slack is one of the leading vendors in the space that facilitates collaboration, particularly within the developer community.
• The company has developed a reputation amongst developers of offering cutting edge features that vastly improve their work experience.
• The company's offering of shared channels, which essentially extends the offering outside the bounds of an individual enterprise/organization is off to a strong start and will add to Slack's moat.
• Slack has successfully competed with Microsoft Teams for several years now and I expect both to emerge as successful offering in the collaboration space.
• I think that the quarter to be reported in March has been teed up as one in which all of the headline metrics are likely to be beaten. I expect that the company will choose to forecast growth a little bit above the current consensus level of 37% for fiscal '21, with a concomitant path to profitability and cash generation.

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Slack-Catching up with an old friend

I initially wrote an introductory piece regarding Slack (WORK) in the days before it went public back in late May of 2019. I was quite positive about the business opportunity and a bit concerned about the valuation. The late spring of 2019 was a benign time to bring a new issue to market and the shares which I had projected might be worth around $24, wound up initially trading at $38. Since that time, valuations have steadily compressed and the shares have recently made a low of just over $20/share. Given the price and the operational performance of the company, and the extreme investor anxiety about Microsoft (MSFT) Teams, I thought it might be appropriate to revisit the company and see if this might be a good time to enter the shares.

The shares bumped up this past week after making a recent low, possibly because of a recommendation by RBC. There is nothing terribly remarkable in the RBC recommendation but it came at the right time after the shares had essentially sat out the January rally. I try to recommend names that I think will do well over the longer term rather than try to pick the optimum entry point. That said however, I do think that even after Slack’s performance last week this is a very reasonable entry point into a name that I think has a very strong long-term future and which is a company that can withstand the greatly feared and exaggerated competition from Microsoft (MSFT) Teams.

Before starting off on my analysis of Slack, there is the issue of the potential market size in

Analyst’s Disclosure: I am/we are long WORK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.