What happened
Shares of Slack Technologies (WORK) rose 30.3% in February 2020, according to data from S&P Global Market Intelligence. The surge hinged on two big moves: one clear-cut 11% jump based on a bullish analyst note and one downright confusing market reaction when Slack announced its biggest contract ever.
So what
First, analyst firm RBC Capital got Slack's February party started with an "outperform" rating and a target price 19% above the stock's price at the time. RBC likes Slack's unique communications platform and market-leading brand name, and the firm expects Slack to post 30% annual revenue growth for several years to come.
One week later, Business Insider reported that Slack had signed a new long-term contract with technology giant IBM (IBM 0.16%). The news drove share prices as much as 17% higher until Slack issued a clarification: IBM has actually been Slack's largest customer for years. The contract is growing, but there was no massive new win to report. The stock actually fell more than 5% in after-hours trading that day. When all was said and done, Slack's stock rose roughly 12% around the IBM-related not-quite-an-announcement.
Image source: Getty Images.
Now what
Slack is a young and relatively small company with a highly volatile stock. When shares are trading at 27 times trailing sales, it's not unusual to see stock prices swinging both high and low as investors try to account for game-changing news.
It's good to see Slack's relationship with IBM staying healthy, and the company might parlay this massive contract into a selling point for potential customers in the future. Slack is earning its stripes the hard way, crushing analyst expectations in each of its earnings reports so far. There's a fourth-quarter report coming in later this week. Keep an eye on that report to see where Slack is going next.
