Predictably, the connectivity app platform Slack (WORK) has become a market favorite.

In 2020, Slack’s share price went from $23.02 on 2 January 2020 to $39.90 on 3 June 2020. However, Slack’s price fell to $25.60 on 11 September 2020.

Investors and some organizations love Slack (NYSE: WORK) because Slack’s platform replaces email with dedicated channels. That gives organizations more control over communications and information in an age when many people work from home.

To explain, at the office organizations can use the ultimate dedicated communications: medium paper. However, paper communications between people working from home are close to impossible.

Slack Sells Control

To work from home with paper, a company will have to hire messengers, spend a fortune on FedEx (NYSE: FDX) or buy each employee a fax machine.  Those solutions are expensive and slow.

Slack offers instantaneous communications without the security risks of email or social media. However, I think encrypted social media such as Telegram and Facebook’s (FB) WhatsApp offer similar services for free.

Thus I believe what Slack sells is control, not connectivity, privacy, or security. To elaborate, Slack sells leaders a product that gives them control over their subordinates’ internal communications. That product is a cloud-based platform that allows instant connectivity from many locations.

However, I think such a platform has a strong appeal to some organizations and leaders. For example, rigid and tradition bound organizations, such as The New York Times or the British Broadcasting Corporation (BBC).

Therefore, I consider Slack (WORK) a niche product with limited appeal. I think Slack will never reach a mass audience.

How Many Users does Slack (WORK) have?

Slack Technologies Inc. (NYSE: WORK) had over 12 million daily active users in October 2019, Statista estimates.

In addition, Slack claimed 65 of the Fortune 100 largest US companies used its platform in January 2019. Organizations Slack claims as users include The New York Times, the Massachusetts Institute of Technology (MIT), the BBC, Oracle (NYSE: ORC), Target (NYSE: TGT), Starbucks (NASDAQ: SBUX), and 21st Century Fox (now part of Disney).

Most of those companies do not have a reputation for being up to date or tech savvy. Thus, I have to wonder how Slack can make money by marketing to such old-fashioned companies.

Is Slack a Micromanagement Tool?

A problem Slack faces is that only older and submissive employees will use Slack. Instead, most of an organization’s people will use WhatsApp, email, or Telegram, and ignore Slack’s existence.

Moreover, I suspect many people; such as New York Times reporters, only put stuff they want the boss to see on Slack. They will send everything else through Telegram or WhatsApp to keep the boss from seeing it.

I think employees will do an end ran around Slack because Slack is a micromanagement tool. Nobody wants micromanagement. Yet I think they designed Slack for micromanagement.

Thus smart investors will ignore Slack (WORK) and buy Facebook (NASDAQ: FB). Remember, Facebook owns WhatsApp, which offers instant encrypted connectivity without the micromanagement.

Is Slack (WORK) Making Money?

 Currently, Slack (NYSE: WORK) loses money. For example, Slack reported a -$76.19 million quarterly operating loss on 30 April 2020. That quarterly operating loss shrank from -$91.19 million on 31 January 2020.

However, Slack’s quarterly revenues rose from $134.83 million on 30 April 2019 and $181.90 million on 31 January 2020 to $201.65 million on 30 April 2020. In comparison, Slack’s quarterly gross profit grew from $116.25 million on 30 April 2019 to $157.53 million on 31 January 2020 to $176.05 million on 30 April 2020.

Impressively, Stockrow estimates Slack’s revenues grew at a rate of 49.57% in the quarter ending on 30 April 2020. Unfortunately, that revenue growth is not leading to income.

For example, Slack reported a quarterly common net loss of -$75.21 million on 30 April 2020. That quarterly net loss fell from -$89 million on 31 January 2020 to -$33.33 million on 30 April 2019.

How Much Cash Does Slack (WORK) generate?

Slack’s platform is not generating much cash. For instance, Slack reported a quarterly operating cash flow of $8.73 million on 30 April 2020.

In contrast, Slack reported a quarterly financing cash flow of $755.96 million on the same day. I think the financing cash flow shows Slack borrowed money to stay in operation.

Impressively, Slack reported a quarterly ending cash flow of $1.267 billion on 30 April 2020.  Slack’s quarterly ending cash flow grew from $22.52 million on 30 January 2020 and $294.98 million on 30 April 2019.

As a result, Slack had $1.525 billion in cash and short-term investments on 30 April 2020. Slack’s cash and short-term investments grew from $792.66 million on 30 April 2019 and $768.59 million on 31 January 2020.

Thus, Slack’s cash is increasing, but I do not think Slack generates enough cash to justify its stock price.

Investors need to avoid Slack

I think investors need to avoid Slack (NYSE: WORK) because Slack has no margin of safety. Moreover, WORK pays no dividend.

I believe the only value Slack has is as an acquisition target. I suspect Slack could collapse, forcing management to sell the company. I think probable buyers for Slack include: Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Oracle (ORC), or Twitter (TWTR).

Consequently, I think the only way speculators could make money from Slack is to short it or bet that Microsoft will buy it. I think the lack of a margin of safety, makes Slack a terrible investment.

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