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Slack earnings beat estimates, but Wall Street is not impressed

Brian Sozzi
Editor-at-Large

When great may just not be great enough for one moment in time.

Shares of Slack Technologies fell 13% initially in after-hours trading after the workplace productivity company posted first quarter results. To say expectations in the lead-up to the earnings report were sky-high may be an understatement given the new work from home paradigm that has erupted during the COVID-19 pandemic. Slack’s stock surged 31% in May alone in the hopes of a booming first quarter as the company’s technology has become mission critical to many organizations.

Slack whipped Wall Street earnings estimates and its own guidance on the back of more paying customers and existing customers spending more on the platform.

Here’s how Slack performed in the fiscal first quarter of 2021 versus expectations.

  • Net Sales: $201.7 million vs. estimates for $188.1 million (guidance: $185 to $188 million)

  • Operating Profits: Loss of $16.6 million vs. estimates for a loss of $38.9 million

  • Diluted EPS: Loss per share of 2 cents vs. estimates for a loss of 6 cents (guidance: loss of 6 cents to 7 cents a share)

And this is where Slack’s guidance came in.

  • 2Q Net Sales: $206 to $209 million vs. estimates for $198.6 million

  • 2Q Diluted EPS: Loss per share of 3 cents to 4 cents a share vs. estimates for a loss of 6 cents a share

  • Full Year Net Sales: $855 to $870 million vs. estimates for $856.5 million (prior guidance: $842 to $862 million)

  • Full Year Diluted EPS: Loss of 17 cents to 19 cents a share vs. estimates for a loss of 23 cents a share (prior guidance: loss of 19 to 21 cents a share)

“I have always believed that, more or less, everyone you know uses us as the foundation of their work. It's hard to estimate exactly what that number is. We thought about at least 200 million people. So the market has always been huge. And we always knew that it was going to take time, no matter how fast it happens there's going to be a first step. But I think what we saw here is an acceleration down of that time limit,” explained Slack co-founder and CEO Stewart Butterfield in an interview with Yahoo Finance when asked to reflect on an unprecedented first three months of the year.

Bottom line

Then why the knee-jerk sell-off? It may boil down to a few factors. First, the company’s closely watched calculated billings growth clocked in at 38% year-over-year — cooling from a 48% pace in the fourth quarter. On a conference call with analysts, Slack execs explained some of its small business customers have been hurt by COVID-19. The company has loosened contract structures and extended credits to help them out, but given the lack of visibility it has opted to pull full year calculated billings guidance.

Paid customers did grow 28% from the prior year to 122,000. And, Slack disclosed that Amazon and Verizon (parent company of Yahoo Finance) have become customers. Butterfield tells Yahoo Finance the new deal with Amazon is “enterprise wide” with “all Amazon subsidiaries.” Big win, and it immediately lit up the Twitter-sphere.

While the growth numbers and customers wins here are impressive, it’s likely the Street was expecting more from the financials in light of the fundamental shift in how we are all working. Dare we say the market was positioned for Slack to record a slight surprise profit in the quarter and more aggressively raise its full-year bottom line outlook? Quite possibly, hence the selloff in the early going.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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