Goldman Sachs Downgrades Slack Tech to Sell From Neutral

Goldman Sachs Downgrades Slack Tech to Sell From Neutral
June 22, 2020

 

The shares of communications software firm Slack Technologies Inc. (NYSE: WORK) was beaten Friday after Heather Bellini, an analyst at Goldman Sachs, downwardly revised the stock to “sell” from “neutral” rating, citing increasing competition from software giant Microsoft (Nasdaq: MSFT). Following the release of the research report, the stock lost 3.19% or $1.09 to close at $33.13. In the past three months, the stock has gained around 65%.

According to the analyst, the competitive environment could affect the San Francisco-California based Slack’s long-term growth prospects and its capability to gain market shares. Bellini further underlines that Slack has made short-term gains from the work-from-home scenario, but will face a tight contest from Microsoft Teams for market shares in the months ahead. The analyst believes that such a situation will affect the company’s long-term growth rate.

As Slack has considerable exposure to SMEs (small and medium-sized businesses), according to Heather Bellini, there is an “elevated risk” of client derangement. Furthermore, she believes that the company’s “exposure to industries directly impacted by the [coronavirus] pandemic” will also affect the performance.

In a research note to clients, the Goldman Sachs analyst has stated that Slack, which was founded in 2009 in Vancouver-Canada, is still expected to lead in the collaboration software space for many more years, if not forever. However, she believes that the current valuation reflects the hypothesis.

Heather Bellini wrote: “While we continue to view Slack as a best-in-class team messaging offering that is favored by the technical community, we expect Microsoft Teams to continue to try and leverage its packaging within Office 365 to drive increased adoption, thus creating the potential for a more competitive environment.”  

On the basis of the above-presented details, Heather downwardly revised the stock but maintained the target price of $30.

Notably, the company has received mixed reviews from analysts last week, after the report of better-than-anticipated Q1 earnings. While reporting the quarterly earnings, Slack withdrew its annual outlook for “calculated billings.”

Mizuho analyst Gregg Moskowitz had opined that the results were not bad, “but not nearly enough.” Furthermore, he maintained his “neutral” rating on the stock, with a one-year price target of $29.

Dan Ives, an analyst at Wedbush, echoed similar thoughts. The analyst stated that even though the company reported impressive 1Q results, still, it will have “significant difficulty further penetrating the core enterprise market,” particularly Microsoft’s Teams product. Ives reaffirmed his “underperform” rating, but upwardly revised his price target to $20 from $14.

The downward revision is expected to keep the stock range-bound with bearish bias in the short-term.

Technically, the stock is facing resistance at 33. Additionally, the stochastic indicator is descending towards the median reading of 50. The next support is anticipated only near 23. Therefore, we are expecting the stock to remain range-bound with slight bearish bias in the short-term.

sla - technical analysis - 22nd June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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