Slack Technologies Gets Buy Rating Initiation From Canaccord Genuity

Slack Technologies (WORK) was initiated with a buy rating and a price target ahead of its current trading level at Canaccord Genuity on Monday on expectations that the messaging platform is at the right time to win the market and close the door on its competition.

The company, which began public trading on the New York Stock Exchange in a direct listing about a month ago, has rallied above its reference price of $26 since then and Canaccord set a target of $40 per share on the San Francisco-based firm’s stock.

“There is little arguing the fact that Slack sports the financial metrics that warrant a premium valuation,” said analysts Richard Davis and David Hynes Jr. in a note. “With high gross margins and a clearly sticky product, we’re quite confident that this will grow to be a 30%+ (free cash flow) margin business with scale.”

The analysts said first movers in software often get “ridiculous valuations” before companies fade, but “the time is right for Slack,” they said, likening the company to other technology majors.

“Skeptics doubted Google at a similar stage as Slack, Amazon could never see more than books and CDs, and surely Oracle would obliterate Salesforce and Workday,” Davis and Hynes wrote. “The doubters were wrong then, and we believe the time is right for Slack.”

Investors over the next 12 to 18 months will have to assess whether Slack’s valuation is acceptable, while in the longer term of five to 10 years, “Slack has the potential to deliver quite rewarding investment returns,” according to Canaccord’s analysts.

“In this scenario, Slack becomes the ‘environment’ in which work gets done,” they said. “This means that employees would use Slack not only as a communications replacement for email, but also as the means by which individuals access the couple dozen applications that they use every day.”

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