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Why Slack Technologies Stock Lost 11% in July

By Jeremy Bowman – Aug 7, 2019 at 10:07AM

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Shares of the office-communications specialist slipped as Microsoft continued to nip at its heels.

What happened

Shares of Slack Technologies (WORK) dazzled investors when they splashed onto the public markets in June, surging on their opening day. However, in its second month as a publicly traded stock, the workplace-collaboration specialist seemed to be experiencing a sophomore slump. Shares gave up 11% in July, according to data from S&P Global Market Intelligence

The pullback seemed to come as Microsoft (MSFT -0.44%) Teams, Slack's closest competitor, surpassed Slack in number of users, and the office-chat platform experienced a service outage for the second time in a month, casting doubts about its reliability.

A screenshot of a Slack chat.

Image source: Slack.

So what 

Slack's biggest trading day of the month came on July 12, when the stock fell 3.6% on high volume. There wasn't any specific news out on Slack that day -- rather, shares got tripped by news of Microsoft Team's sudden gains. 

The office tech giant announced the night before that its Teams platform, a competing product that allows co-workers to chat and collaborate on projects much in the way that Slack does, had reached more than 13 million daily active users. The news confirmed fears that Microsoft, which launched Teams in March 2017, may be eating into Slack's future growth.

Teams now has more more members than Slack, which reported 10 million daily users in January, but apples-to-apples comparisons are tricky as costs are different for each one. Teams growth has skyrocketed since Microsoft introduced a free plan for it in hopes that companies end up paying for the product as they ramp up and expand their use.

Elsewhere, Slack suffered its second networkwide outage in a month on July 29, adding to concerns about the company's ability to retain users. The stock gave up 3.2% in that session. Investors may also have been spooked by CEO Stewart Butterfield selling his shares throughout July, following the company's direct listing in June. 

Now what 

Slack investors and those interested in the stock would be wise to keep an eye on Microsoft. Since the early days of the computer, Microsoft has dominated office and enterprise software and doesn't take kindly to new rivals encroaching on its turf, even if they are market darlings that have "disrupted email." Microsoft has a slew of competitive advantages, including its entrenched customer base and ability to integrate Teams into a wide-ranging software suite that its customers are already using and very familiar with.

Slack's growth is already slowing down, projected to come in at 50% this year after surging 82% in 2018. Those all look like yellow flags to me, if not a full-on warning, for the recent initial public offering and an unprofitable company that's supposed to be a growth darling.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool owns shares of Slack Technologies and has the following options: long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

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