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Why Slack Stock Surged 38% in the First Half of 2020

By Joe Tenebruso – Jul 5, 2020 at 3:05PM

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The communication platform is benefiting from the rise of remote work forces.

What happened 

Shares of Slack Technologies (WORK) climbed 38% in the first six months of the year, according to data from S&P Global Market Intelligence, driven in part by the trend toward working from home. 

So what 

Although the COVID-19 crisis has had a devastating impact on countless businesses, it's boosting demand for Slack's technology. Slack's messaging platform -- which enables quick and seamless communication among distributed workforces -- has never been more needed than during this time of social distancing.

A person is pointing to a digital map of the world.

Slack helps widely dispersed teams communicate. Image source: Getty Images.

In turn, Slack's business is thriving. Its first-quarter revenue jumped 50% year over year to $201.7 million, fueled by a 28% rise in paid customers.  

Now what

Increased acceptance of remote work arrangements among major corporations should continue to fuel Slack's growth in the months and years ahead.

"We believe the long-term impact the three months and counting of working from home will have on the way we work is of generational magnitude," CEO Stewart Butterfield said in Slack's Q1 earnings release. "This will continue to catalyze adoption for the new category of channel-based messaging platforms we created." 

Still, Slack is facing formidable competition from Microsoft, and it's unclear which messaging platform will emerge as the winner in this hotly contested market. Moreover, Slack is not yet profitable, and its shares currently trade at a steep price-to-sales ratio of 25. For these reasons, investors should view Slack's stock as a relatively high-risk investment.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and Slack Technologies and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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