On today's episode of Before and
After, powered by Refinitiv, we
are looking at two companies that
are disrupting the status quo
and helping to usher in the modern
workflow model.
They are forefront in the blending
of the tech, business and
gig economy.
Intrinsic value doesn't always lead
to monetary gain though and we want
to look at events and announcements
that can signpost possibilities
for asset price movements and give
our position an advantage around
them. So in this episode, we
will look at upcoming announcements
from Salesforce and Slack.
Then its a look into the US retail
till to see if Black Friday
earned its name and turned the
corner on the suspect economic
indicators.
Salesforce's cloud based enterprise
software accounts for the majority
of their revenue and has become a
central part of most major
I.T. department budgets.
Earnings have averaged over 20
percent gains each quarter since
2017, and
that makes the upcoming third
quarter announcement crucial.
Salesforce generates one third of
its revenue internationally and this
announcement will give us a glimpse
of how, if at all, the economic
slowdown has affected global
I.T. spending.
In theory, Salesforce
should be less vulnerable to macro
shocks as their first mover
advantage in cloud customer
relationship management (CRM)
has seen Salesforce's market share
at six times their closest rivals;
Oracle, Adobe and Microsoft.
But there lies the risk...theory
does not always translate to
practice.
Fear of an economic slowdown
is often a huge impediment to
revenue generation and salesforce's
25 percent growth from Q1
and Q2 sales may not be
repeated, leaving their goal to
double revenue by 2023
in possible danger.
But for now, Salesforce's momentum
as a company and in the sector
is still firmly on the upside.
Microsoft, one of their competitors,
has had a torrid 2019
and is still up 49%
year to date.
This actually bodes well for
Salesforce going into year end as
the sector will be afforded a steady
bid and no one will want to book
the profit this year for tax
purposes.
There aren't really any expectations
for margins to improve, so all eyes
will be on revenues which are
expected to come in at
4.45 billion US dollars,
a growth of 31 percent
year on year.
A beat would lead to a test of the
$172.90
level on the upside.
Downside support on a miss is the
$155 level, which was a top for most
of the summer months.
A breach of that support level would
see Salesforce retesting the October
lows of
$141.49. But again, the risk is
still skewed to the upside, given
the market momentum and time of
year.
Slack is a company that has so
disrupted the collaborative
application software market that
to Slack someone is corporate
lingo's version of texting someone.
Slack's core service offering is a
communication platform that provides
real time messaging, file sharing
and archiving.
Like Salesforce, Slack trades at a
premium over competitors.
But much of the euphoria of Slack's
June direct listening has faded
away into the close of 2019.
As is the case with many venture
unicorns, the public market is not
a place where companies go to raise
money.
The spectacle, an opportunity to
fetch an even higher valuation
and giving early investors an exit
are the true motives.
So when slack directly listed,
which means the company took no
proceeds from the stock going
public, they were seen again as
disruptive.
And in the beginning it worked.
Or Refinitiv chart shows that day
one trading on the New York Stock
Exchange saw slacks, a stock
symbol work rise from its reference
price of 26 to
38.62.
But here's the rub, Slack's dual
class share structure meant that
super voting class B shares
must be converted to class A common
shares before they can be sold.
First day trading volume for work
was 140 million shares.
One hundred and ninety four million
were converted.
And so now we're here less than
six months since the direct
listening and the stock is lower
than its reference price, trading in
the low 20s.
Like their unicorn brothers, Uber
and Lyft, Slack is a cash
burner,though,Slack's prospects of
profitability are much more
realistic.
At an 18 times sales multiple
compared to their comps, who on
average trade at two times, where
the company should fundamentally be
priced is anyone's guess.
Slack has a 12 billion
market cap for a sector that
currently totals 18 billion
and they have much more robust
competition from Microsoft than does
Salesforce.
With that in mind, for trading
purposes, we can look at these
scenarios.
Slack at current levels is about
12 percent below their reference
price of 26.
Since there is no 180 day lockup
looming, the reference price is of
much less concern or importance.
Slack's investors in the
aftermarket, where it opened at
38.62, would already be down
40%.
So then we should focus on where the
investors in the private markets
price level is to understand
where the stock could go.
In Slack's last financing round
in August 2018,
the company sold shares at $11.91
for
a valuation of
$7.1 billion.
It's not unreasonable for Slack to
trade at 10 times sales and
revisit their private market
valuation, which is alarmingly
still 50 percent of potential
downside for current shareholders.
Any slip up in top line growth will
send this already wounded animal
spiraling.
The caveat is that the stock, as we
stated, is already very
oversold, down 40 percent
in under six months since it started
trading. A beat on the top line
revenue estimate of
156 million for the quarter and an
increase of forward guidance could
see a double digit pop.
Here we're thinking about the 26
level of the reference price, which
would set the stock at the upper end
of the expected results day range.
As expected, the shift from brick
and mortar shopping to online retail
has occurred.
Black Friday cyber sales set a
record, as did Thanksgiving Day
online purchases.
The 7.4 billion in
online sales on Black Friday marks
19.6% growth year over year.
A couple of things to note as well
about the cyber purchase sales
numbers.
There was a record breaking one
hundred sixty eight dollars average
order. And secondly, 65
percent of purchases were made on a
mobile device.
Record setting numbers for sure.
And yet after opening slightly
higher, futures faded and the NASDAQ
quickly sank to down 1 percent
on the day, led on the downside
by, you guessed it,
Amazon.
With a solid jump in cyber shopping
and robust total sales, this
type of negative price action is
not a good omen, especially
given the previously mentioned
strong Thanksgiving trading periods
where from 2007 to 2017,
a grouping of S&P 500 retail
stocks posted a 5 percent
return compared to the average 3
percent return for the S&P 500
overall.
We need to follow Amazon and retail
in particular over the coming weeks
because we know the overall markets
will be following suit.
This has been before and after
powered by Refinitiv.
I'm your host, Jamie Macdonald.
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