Slack's stock rises on quarterly results but outlook points to higher-than-expected losses

Key Points
  • Slack's stock performance has disappointed investors since the company's public market debut in June.
  • Microsoft has been promoting its competitive Teams product, packaging it with its Office 365 suite.
Slack Technologies Inc. CEO Stewart Butterfield stands on the trading floor during the company's IPO at the New York Stock Exchange (NYSE) in New York, U.S. June 20, 2019.
Brendan McDermid | Reuters

Slack shares rose about 2% in extended trading on Wednesday after the developer of the popular work messaging app reported better-than-expected quarterly results. The stock bounced around, dropping as much as 6% at one point, on concern about future losses.

Here are the key numbers for the fiscal third quarter:

  • Earnings: Loss of 2 cents a share, compared with an average estimated loss of 8 cents, according to Refinitiv.
  • Revenue: $168.7 million, compared with an average estimate of $156 million, according to Refinitiv.

Sales in the quarter, which ended Oct. 31, climbed 60% from $105.6 million a year earlier. Slack continues to grow at a rapid clip by selling its messaging service to businesses of all sizes, particularly to large companies. The company said it now has 821 customers paying more than $100,000 in annual recurring revenue, up from 720 in the second quarter.

CEO Stewart Butterfield said on the call with analysts that Slack now has more than 50 customers spending more than $1 million a year, up from 30 a year ago.

For the fourth quarter, Slack forecast revenue of $172 million to $174 million, compared to the $172.9 million average analyst estimate, according to analysts surveyed by Refinitiv. But the company provided guidance for its bottom line that suggested costs may be higher than expected. Slack said its loss, excluding some items, will be between 6 cents and 7 cents a share, while analysts were projecting a 6-cent loss.

Slack also said early investor Chamath Palihapitiya is leaving the board and is being replaced by Michael McNamara. Palihapitiya landed in hot water in May, just ahead of the company's stock market debut, when he told CNBC that Slack "will be one of the most important tech companies in the world." Slack said in a filing after the TV appearance that the company did not endorse the comments.

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Despite its expansion, Slack has hit a snag on the public markets since its direct listing in June, primarily on concern that Microsoft is taking some of its business. The stock fell 4% on Wednesday to close at $21.66, down more than 40% from its first-day close on June 20.

Microsoft said last month that its Teams product now has 20 million daily active users, significantly more than the 12 million users Slack reported in October. With a stock market value of over $1.1 trillion and a ubiquitous presence in the workplace, Microsoft can package Teams with its Office 365 suite and make it really easy to use.

While Slack defenders claimed that Microsoft is juicing its numbers, analysts at MKM Partners, who have a buy rating on the stock, noted on Nov. 29, that "investor sentiment remains quite negative after Slack's soft earnings result in September followed by heightened competitive pressure from Microsoft."

On Wednesday's call, Butterfield said that 70% its biggest customers — those spending over $1 million — are also Office 365 customers that use Microsoft for other parts of the package.

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