WORK: Adding Slack to Investing Ideas (Short Side)

Hedgeye CEO Keith McCullough is adding Slack (WORK) to the short side of Investing Ideas. Below is a brief note.

Looking for a Tech Short against the Tech Sector Style (XLK) Long in #Quad3? Ami Joseph has generated plenty of alpha for our Institutional Subscribers here in Q2, despite the Sector Style going to all-time highs!

Slack (WORK) was a much better short at the beginning of June, but we bear hunters like nothing more than a lower-high on #decelerating volume from there...

Here are some Institutional Research notes from Technology analyst Ami's Joseph on why:

Slack’s CEO had a good pitch about the millions of workers still living in email-centric organizations and not on Slack, which he sees as an opportunity. We agree with the longer term potential. However, for now, those organizations are unlikely to experience mass conversion if they didn’t do so when the COVID Sea parted or when lightning bolts descended from the sky at Mount Work-From-Home. But to be fair, it doesn’t mean growth is over, it just might mean acceleration is over, for now. On billings adjustments: we are not buying into the $10MM add-back unless everyone agrees to de-book that out of billings when the deal gets recognized sometime in the next three quarters. The $7MM? Fine - for now they keep that as adjusted Billings but really it is typically thought of as a long-term account receivable (i.e. a problem rather than a growth kicker). And if those companies go bankrupt Slack won’t collect any of the $7MM. Bottom line, the April-Q billings range – the best Q Slack will see for now and a huge acceleration point – is either 38% (reported), 42% (Hedgeye adjusted, with shrug), or 49% (CFO wish list). Even the top of that range is miles below the 66% we were modeling based on translating mobile DAU and we guess below most of buyside expectations. After all the fuss, we don’t see what all the fuss was about.

Sell on green. Bears can be mean,

KM