Slack Valuation!

Dear Reader,

Here I am going to present my view on the valuation of Slack Technologies, Inc., the owner of the corporate messaging app Slack, which made a direct listing on the New York Stock Exchange trading under the stock ticker WORK.

In short, I believe Slack is worth currently or will be  worth in 1-3 years around 10 billion USD  or a bit more than half its current market capitalization of 18.92 billion USD. This implies a fair stock market price of Slack of around 18 USD.

Why? Slack will go down the route of other firms like Snap, Box, Dropbox, Twitter, Spotify some of which listed at more than 20 times Price/Sales(Market Capitalization/Last Year's Revenue). Some of the corporations mentioned above like Snap, the owner of Snapchat, listed at around 40 times Price/Sales. Actually, Slack is trading at a price sales ratio of 41.63. Slack is simply grossly overvalued in the short term. Year on Year Slack's yearly revenue grew by 82% from 220.544 million USD in fiscal 2018 to 400.552 million USD in fiscal 2019. Slack's last quarter's year on year growth actually slowed to 67%. Even if Slack goes on to grow revenue at 20% for the next 10 years, revenue will be somewhere around 2.5 billion USD in 2029. If we assume net profit margin of 20% Slack under those assumptions would have made 500 million USD in net profits in fiscal 2030. If we assume Price/Earnings ratio of 30, which is high in 2029 Slack would be worth 15 billion USD under the above assumptions, which is roughly 25% below the current market capitalization of Slack.

In short, Slack is twice overvalued. Currently, analysts project Slack's total addressable market at 28 billion USD in some years. Slack is going to verify its current valuation, if it truly revolutionizes corporate communications and gets into other corporate stables like the Microsoft Office Software. I put the probability of such a scenario at 10%. Much more possible is that Slack is going to grow into its valuation in 10 years or so if it grows at a healthy 20% year on year revenue. If we truly enter a new genuine dot com bubble, Slack valuation, of course, could go through the roof. But the stock price developments of GoPro, GroupOn, Zynga, Fitbit, DDD, Twitter, Snap, Box, Dropbox show this market is capable of pricking small bubbles in its froth without actually imploding.

I forecast the same will happen to Slack. Slack's market capitalization will fall to around 10 billion USD in 1-3 years and then depending on the company revenue growth and net profit generating ability its market capitalization in 5-10 years could actually start to near its current market capitalization of 18.92 billion USD.

Of course, in the short run, driven by pure speculation Slack's market capitalization could shoot up to even more unfounded values.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich