Slack Stock Prices Tumble Despite Better-Than-Expected First Earnings Report

Slack Technologies
The Slack Technologies Inc. logo is seen on a banner outside the New York Stock Exchange (NYSE) during thew company's IPO in New York (Photo: Reuters / Brendan McDermid)

Workplace messaging app Slack Technologies saw it's stock prices plunged by as much as 15 percent in after-hours trading on Wednesday.

The company's two-month-long stint in the Wall Street limelight may be coming to an end as the decline essentially wiped out its gains since it went public back in June.

The decline in the company's stocks came after it published its first earnings report as a public company. Despite announcing an upgrade in its outlook for the rest of the year, investors still lost confidence in the stock as evident in the sudden decline.

The company's stock prices briefly touched its original IPO reference price of $26. A couple of Wall Street brokerages immediately cut their target price for the stock, but most have retained their recommendations.

The firms that cut their target price reasoned that the company's rising expenses was a point of major concern.

In its earnings report, Slack revealed a slight decrease in its sales growth. Investors likely felt that the trend could continue into the next quarters, further resulting in a drastic stock price course correction.

The company reported total revenues of $145 million for the quarter, an impressive 58 percent increase over the same period last year.

However, the growth in its revenue was lower by more than 67 percent when compared to its previous quarter for its fiscal year.

Based on its performance, Slack is projecting a total revenue increase of around 51 percent to 52 percent for the rest of the year. The forecast is significantly lowered than its revenue growth of 82 percent in 2018.

Like most of its tech startup peers, Slack is experiencing massive growth in revenues without actually making any profits. For the quarter the company reported a net loss of $0.14 per share, which surprisingly still beat analysts' expectations. Slack did, however, mention that it expects losses of between $0.40 and $0.42 per share for the rest of the year, worse than analysts' estimates.

Slack explained that the decline in the growth of its revenue for the quarter was partly due to the expenses it incurred due to a lengthy services outage that happened in May. The company apparently spent close to $8.2 million in credits, which it gave to customers who were affected by the service interruption.

According to the company's CEO and founder, Stewart Butterfield, the company is now heavily investing in systems that can monitor these types of service interruption. The executive explained that while the service may look very simple for users, there is apparently a lot of complexity in how they have managed to make it look that simple.

© 2019 Business Times All rights reserved. Do not reproduce without permission.
Sign Up for Newsletters and Alerts