Earnings preview: What to watch when Slack reports Q2 results?

Slack Technologies Inc. (NYSE: WORK) is scheduled to report earnings results for the second quarter of 2020 on Wednesday, September 4, after the market closes. Analysts expect the company to report a loss of $0.18 per share on revenue of $141.2 million.

This is the company’s first earnings report after going public through a direct listing on June 20. Slack’s stock opened at a price of $38.50 a share but has since fallen over 22%. Last week, the stock gained slightly after MKM Partners gave it a Buy rating and a price target of $40.

Slack has managed to grow its revenues and the number of paid customers on its platform, which is a positive factor. However, the company’s outlook indicates a deceleration in revenue growth and if this trend continues, along with the ongoing losses, it could prove to be a risk. In this scenario, it becomes imperative for Slack to review its strategy for achieving profitability.

Slack also faces tough competition in the workplace communications industry from tech giants such as Google (NYSE: GOOGL) and Microsoft (NYSE: MSFT). Despite this challenging competitive environment, some analysts seem optimistic that Slack has opportunities for expansion in the market.   

The stock is likely to gain following the earnings report if the company tops estimates. It is also important to look for any indications of when the company plans to achieve its profitability targets.

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In the first quarter of 2020, Slack’s revenues increased 67% to $134.8 million. GAAP loss per share increased to $0.26 from $0.21 in the prior-year period. Adjusted loss per share widened to $0.23 from $0.16 last year.

Slack ended the first quarter with over 95,000 paid customers. The number of paid customers greater than $100,000 in annual recurring revenue (ARR) soared 84% year-over-year to 645. 

For the second quarter of 2020, Slack has guided for revenue growth of 51-53% year-over-year to a range of $139-141 million. Adjusted net loss per share is expected to be $0.20-0.19. For fiscal year 2020, revenue is expected to grow 47-50% to $590-600 million. Adjusted loss is expected to be $0.44-0.41 per share.

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