Slack will release its first quarterly report ever on Wednesday. What investors expected about it
This week, a number of high-profile companies will release their earnings. Some of these companies will be Palo Alto Networks, Smart Sheet, Signet Jewelers, and Lululemon. Another company that will be watched closely will be Slack, which will release its earnings on Wednesday.
In this article, we will look at Slack and what we can expect from it on Wednesday.
Slack is one of the fastest-growing SAAS companies in the world. The company was started in 2009 to provide internal communication services to companies. The founders said that their goal was to help transition from email communications. Today, the company is used by thousands of companies and more than 10 million users every day.
Slack uses a freemium model: in this, most of its users pay nothing to use the service. As their companies grow, these subscribers pay between $6.67 and $$12.50 a month to access its platform.
Slack became a public company in June this year using the model used by Spotify. The company did not have an IPO. Instead, the company issued its stock in the public market directly.
As such, it avoided the millions in dollars that are paid to Wall Street bankers like Goldman Sachs and Morgan Stanley. As a public company’s stock has moved down by 10% and is trading at $28. It is currently valued at more than $14.45 billion.
In the past few months, companies in the SAAS sector have underperformed the market as large companies start to slash their IT spending.
Why Slack's stocks underperformed the market
Another reason why Slack’s stock has not done extremely well is that investors don’t know what to expect. They will get a clear picture about this when the company releases its report this week.
Investors expect that the company will release results of more than $141 million and a loss per share of 14 cents. These losses are also part of the reason why the stock has been on a downward trend. In FY 2017, 2018, and 2019, the company had losses of more than $146 million, $140 million, and $138 million respectively.
These losses will continue as the company continues to invest in growth, research and development, and sales and marketing.
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Using the $400 million revenue made in FY 2019, the company has a trailing PS multiple of 35. This is much higher than what other companies have. For example, companies like Microsoft, Salesforce, and Amazon have a trailing PS ratio of 8.3, 3.4 and 9.3.
Therefore, there is no doubt that Slack is overvalued (but it is not alone). Other small SAAS companies that have recently come to market have received such valuations. This includes companies like Okta, Shopify, and Wix.
Still, these have been among the best-performing companies in the market.
This week’s report will tell investors whether the company deserves such a pricey valuation. This is because the company is facing so much competition. In recent months, Microsoft Teams, a similar product has been taking up market share. Indeed, it has more than 13 million users compared to Slack’s 10 million.
Other companies with a similar product are Trello, Asana, Monday, and Chanty. In the past, some of the best-performing SAAS companies have seen their stock drop as their growth slowed. These are companies like Dropbox and Box.