Slack Technologies is a long term hold, this fund manager says

Instant messaging software company Slack Technologies (Slack Technologies Stock Quote, Chart, News NYSE:WORK) is raising questions after a successful IPO this summer has turned sour as investors worry about Slack’s staying power versus the much larger Microsoft.

For his part, portfolio manager Kim Bolton thinks that the company’s got a long runway ahead of it.

Slack and its much-loved platform hit the markets in June with a direct listing that started with a $26 per share reference price which quickly climbed over the $40 threshold in early trading. That good will was short-lived, however, as it’s been pretty much all downhill since then, with the stock dropping to the $20 mark by late October. (All figures in US dollars.)

Part of the issue seems to be market uncertainty surrounding the company’s future as Slack takes on powerhouse Microsoft to win over users to its messaging platform. Many see Microsoft’s attempts at improving its chat program Teams as a direct alternative to Slack.

The battle is far from over but where investors can point to Microsoft’s demonstrated profitability, the same can’t be said for Slack, which posted a loss of 14 cents per share in its second quarter earnings report in early September.

Revenue came in at $145 million, which was above analysts’ consensus forecast of $140.7 million, but management’s guidance for the upcoming quarter was underwhelming, calling for revenue between $154 and $156 million in comparison to analysts’ expected call for $153.2 million. For the full fiscal year, Slack called for revenue between $603 and $610 million in revenue where analysts on average were expecting $601 million.

But Bolton says that the slump after going public should be taken with a grain of salt, as it has less to do with Slack’s business prospects and more with the stock’s price action.

“We follow it but we don’t own it, and we own a lot of the messaging services,” says Bolton president of Black Swan Dexteritas, in conversation with BNN Bloomberg on Wednesday. “I use Slack at least a dozen times every day.”

“We’ve just been watching it but we believe that it has a long runway. We believe the space has a great deal of value,” he says.

“On an IPO, it doesn’t have that much to do with the fundamentals. It’s more about looking at the price action of when people are going to be able to come in and monetize and take money off the table,” he says. “We really like the story of Slack but you have to watch the price action and that’s what we look at when it comes into an IPO and out of it because you’ll get a flavour of the capital flows going into that business.”

Late last month, Piper Jaffray initiated coverage of Slack with an “Overweight” rating and $30 per share price target, saying that the stock’s risk/reward balance is now looking better after the recent selloff.

In September, Slack released user numbers which showed more than 12 million daily users, up 37 per cent from a year earlier and close to the 13 million daily users touted by Microsoft in July for its Teams platform.