Yet, don’t take this recent pullback to mean the show’s over. Sure, growth is slowing down, as the collaboration software provider scales up. But that doesn’t mean the growth train is going off the rails.
Far from it, the remote work trend remains in motion. And it’ll remain in motion, even after the novel coronavirus is over and done with. Granted, corporate America may not yet be 100% on board with an all-remote workforce.
But, as InvestorPlace’s Luke Lango wrote Sept. 15, Slack can still win, even if companies only partially employ permanent remote work policies. How so? A hybrid work future (as Lango put it) means collaboration SaaS platforms like this one are more essential than ever.
With this in mind, it’s clear Slack remains solid long-term play. Yes, the rate of growth will continue to cool. But overall, this remains a company growing at an above-average clip.
Slack Stock, Slowing Growth, and What’s Next
With the Sept. 8 quarterly earnings release, most of Wall Street’s attention was on the company’s top-line growth. And, as I mentioned, this fell short of the street’s sky-high expectations. Yet, despite the market reaction, Slack’s results for the quarter ending July 31 showed a solid performance.
Between narrowed operating losses and growth that’s slowing down but still impressive, not that much has changed for this stock’s bull case. So, why have investors pushed Slack stock down from its 52-week highs (around $40 per share) down to today’s prices (around $26)?
Chalk it up to two factors.
First, big tech stocks overall have been selling off. With investors taking profit, along with valuation concerns, this is understandable. Yet, this moderate correction in tech names with stay-at-home economy tailwinds isn’t a sign it’s time to bail out. In fact, for name like this stock, this dip offers investors who missed out earlier a solid entry point.
Second, Slack’s “knock it out of the park” results as of late means it takes even greater levels of growth to wow investors. But, heightened investor expectations don’t automatically mean additional pullbacks are in the cards.
Yes, projected year-over-year growth of between 32% and 33% is far below what we’ve seen in the last two quarters (49% and 50%, respectively). But growth above 30% is nothing to sneeze at. Simply put, as use of collaboration software demand keeps rising thanks to remote work trends, the company’s growth will remain far in the double digits.
Granted, competition’s heating up. But big tech’s interest in entering this space may mean this name continues to be a takeover target.
Still A Takeover Target, But That’s Not the Main Play Here
Even before the pandemic, the collaboration SaaS space was booming, thanks to the existing trends in office decentralization. Because of this soaring demand, many players have entered this space, vying for a piece of the action. Namely, Microsoft (NASDAQ:MSFT), with its Teams platform.
And yes, that could be bad news for Slack. As this commentator recently opined, there’s plenty of reason why larger, better-capitalized Microsoft has the edge over this currently unprofitable company.
Yet, while it faces massive competitive threat from that tech powerhouse, to other major tech names, Slack could be an enticing takeover target. Simply put, it may be easier for a big tech company like Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) to buy a collaboration SaaS name like Slack outright instead of building its own from scratch.
That’s not to say you should buy Slack stock only on the chances it gets acquired. Sure, as our own Ian Bezek wrote back in December, this company looks like a no-brainer bolt-on acquisition opportunity for the major tech names. But buying shares on potential M&A isn’t the play here.
The play is, and will continue to be, the continued shift to remote work. Even after the pandemic and its social distancing mandates enter the rearview mirror.
Slack Remains A Solid Opportunity
Due to the pandemic, work-from-home has become the norm. But don’t expect this recent acceleration to reverse course once we return to normal. This remote work play stands to win, whether companies employ remote working complete, or just partially. With the workplace decentralized, collaboration platforms are more important than ever.
So, what’s the takeaway here? Don’t take the recent pullback to mean the party’s over for Slack stock. This remains a solid opportunity.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.
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