Slack shares tank after dismal forecast

(Reuters) – Shares of workplace messaging company Slack Technologies Inc (WORK.N) were set for their worst day since the company made its stock market listing in June, after it flagged slower revenue growth amid intensifying competition.

The business-focused messaging and communications platform, which went public through a direct listing, managed to post a smaller-than-expected loss in its first report as a public company.

But expenses are taking a toll. Slack is trying to become the main source of communication in workplaces and competes with Microsoft Corp’s (MSFT.O) Teams, which in July had over 13 million daily active users, three million more than Slack.

Credit Suisse analysts expect competition with Microsoft and slower growth in free cash flow to cut the stock’s value to $25. Slack’s shares were down 13.7% at $26.80 in premarket trading.

Despite the disappointing forecast, the stock suffered only two price target cuts and saw no downgrades.

Analysts at D.A. Davidson said Slack forecasts very conservatively, as is normal for recent software initial public offerings, noting that the guidance was still above their own prior consensus.

“Stepping back, we like Slack for its near-ubiquitous nature, rapid growth, secular tailwinds and large market opportunity and our due diligence is very positive,” D.A. Davidson analysts wrote in a note.

Chief Executive Officer Stewart Butterfield in a conference call with analysts said, “Most of our large enterprise customers, they run on Office 365. They still chose Slack because only Slack was capable of meeting their needs.”

“Several large wins at Office 365 customers make us feel incrementally better about Slack’s ability to compete against Teams in the Office 365 customer base,” analysts at Credit Suisse said.