Slack beats Q4 2020 expectations, fails to excite investors

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Last week, popular workplace communication tool Slack released its FQ4 2020 earnings report, which saw which revenue rise to $181.9 million for the period, a gain of 49 per cent when compared to the year-ago quarter.

A win for the recently listed company, as investors had initially been expecting Slack to report revenue of $174.14 million.

Slack also managed to beat expectations on gross margins for the quarter, reporting 86.6 per cent in the period, along with a large operating loss of $91.2 million and negative net income of $89.1 million.

However, while the company’s results beat expectations from analysts, Slack’s share price still plummeted 20 per cent in the wake of the news, as the firm had previously promised for its Q1 fiscal 2021 (the current quarter):

  • Q1 fiscal 2021 revenue: $188.37 million
  • Fiscal 2021 revenue: $854.45 million
  • Q1 fiscal 2021 adjusted EPS: -$0.07
  • Fiscal 2021 adjusted EPS: -$0.21

This means that while results are strong, Slack’s current-quarter revenue guidance is a tiny bit light, while its full-year revenue guidance is in the middle of expectations.

Why is the company being punished, then, if its numbers are at least as good as what investors ostensibly had priced in? Because the world has changed in the last two weeks, and Slack had a very rich valuation.

Slack is still valued above most SaaS companies in terms of its revenue multiple, even taking into account its post-earnings declines. So, it couldn’t just meet expectations, it needed to beat them. And while its Q4 fiscal 2020 (the quarter it just reported) did beat expectations, the company’s forward guidance appears to have failed to excite.