Slack Technologies (NASDAQ: WORK) Stock Pullbacks a Buy into Earnings

Of the pandemic work-at-home technology plays, Slack Technologies (NASDAQ: WORK) stock has been underperforming. The Company recently filed a European Union (EU) antitrust suit against Microsoft (NASDAQ: MSFT) regarding its unfair bundling of its Teams program with its Office suite of products. Shares are still positive year-to-date and outperforming the benchmark S&P 500 index NYSEARCA: SPY. The continued bearish narrative regarding competitive pressures and peaking of growth can provide opportunistic entry levels for investors who subscribe to the “new normal” post-COVID-19 work environment which will be a combination of remote and office engagement.

Q1 FY 2021 Earnings Release

On June 4, 2020, Slack released its first-quarter fiscal 2021 results for the quarter ending April 2020. The Company reported a loss of (-$0.02) per share versus consensus analyst estimates of (-$0.06) per share. Revenues came in at $201.65 million crushing estimates of $188.12 million analyst estimates, up 50% year-over-year (YoY) with calculated billings up 38% YoY at $206 million. Bolstered by stay-at-home mandates, the Company raised Q2 earnings guidance to (-$0.04) to (-$0.02) versus estimates of a loss of (-$0.06) per share on revenue guidance of $206 to $209 million versus $199.86 million analyst estimates. For fiscal full-year 2021 guidance, Slack forecasts earnings losses of (-$0.19) to (-$0.17) per shares versus a loss of (-$0.20) per share estimates on revenues of $855 million to $870 million versus $861.3 million consensus analyst estimates.

CEO Hype Takeaways

Slack CEO Stuart Butterfield hyped up the “phenomenal” quarter stating the work from home surge will have an impact of “generational magnitude” that will continue to pay off. The Company added 12,000 net new Paid Customers with 50% revenue growth YoY. Paid customers grew 28% YoY to over 122,000. Gross margins grew to 88.9% from 86.7% YoY. The forward guidance seems like a weak attempt to low ball estimates, which didn’t fare well with the underlying stock price.

Sell the News Reaction

Slack shares had received a number of upgrades heading into the Q1 earnings release spiking as high as $40.81. This set the bar super high with little room for any disappointment. While the numbers were strong, the inevitable sell-the-news reaction kicked in from the tempered forward guidance. Shares ultimately collapsed to the $29.90 Fibonacci (fib) level before coiling back towards the $34.05 fib. Keep in mind that Slack decided to forgo the traditional underwriter controlled initial public offering (IPO) and opted for a Dutch-style offering. Monness Crespi & Hardt downgrades to Neutral on June 5, 2020. Goldman Sachs downgraded Slack with an ominous SELL rating on June 19, 2020.

Rollbacks and EU Complaint

As a second wave COVID-19 cases light up hotspots, the uncertainty of potential rollbacks are causing pandemic stocks rally once again. Unfortunately, Slack shares are failing to participate with peers like Zoom Video NASDAQ: ZOOM due to its tangled battle with Microsoft Teams app that is package in with Office. The EU anti-trust complaint claims Microsoft’s Teams product is unfairly force installed with Office and blocks its removal willfully violating EU anti-competitive practices statutes. As Slack shares continue to breakdown, investors may want to monitor bargain entries as negative sentiment becomes an overreaction ahead of earnings setting the bar lower.

WORK Price Trajectories

Using the rifle charts on the weekly and daily time frames provides a broader view of the landscape for WORK stock. The daily rifle chart formed a market structure low (MSL) buy above $21.37 and the weekly MSL trigger formed above $24.70. The daily formed a market structure high (MSH) sell trigger under $30.52, which has been a support area versus the $34.05 fib resistance area channel. The weekly stochastic formed a make or break with a bearish stochastic mini inverse pup. The compound bearish sentiment, the daily stochastic also formed a mini inverse pup completing a “dual viper” bearish pattern that should provide opportunistic pullback entry levels at the $27.86 fib, $26.39 fib and $25.15 fib. The bearish weekly and daily stochastic mini inverse pups will continue to drive the proverbial “bar” lower ahead of Q2 earnings due out in September. Markets have muscle memory. The devastating share price collapse on the Q1 earnings release has burned investors that bought into the run-up just days before the release. If the pullback levels are hit, then look to sell into the earnings run-up. If shares continue to sell ahead of release, then look for a slingshot rally reaction on the release. While Q1 numbers were incredibly strong, the forward guidance makes it appear like a one-quarter spike. If the Company revises guidance higher, then multiples should expand.