Zoom Video Communications (ZM) gave investors and Wall Street one of those earnings announcements plus guidance that you rarely see. It was something beyond perfect.
During the first quarter, Zoom grew revenue 169% year over year, posted a bottom-line profit more than double expectations, and top-line revenue 62% above expectations!
Those numbers are amazing, but sometimes they occur because of a pull-forward. Companies reporting those kind of results often have a slightly tepid guidance. But not Zoom.
Second-quarter EPS guidance went from $0.11 to $0.44-$0.46 and full year's from $0.45 to $1.21-$1.29. Revenue guidance for both the second quarter and full-year 2021 essentially doubled from previous consensus.
Zoom justified the huge run in shares. The stock went from looking like one of the most overvalued, overhyped work-from-home plays to fairly valued. Don't get me wrong here. The $54 billion market cap priced in these numbers, and I'm still expecting a retest of $180, but Zoom demonstrated the market has embraced its tech.
The Zoom report was a death knell for Slack.
Last night, Slack Technologies (WORK) reported better-than-expected top and bottom-line numbers. It guided the second quarter higher for both the top and bottom line as well. The full-year guidance looked more like the pull-forward mentioned above, but it is more likely management simply isn't willing to roll the dice out that far in time not knowing the impact of current events. Add in an integration deal with Amazon (AMZN) Web Services (AWS) and I'd say the overall report was solid.
If -- and this didn't happen -- if Slack had reported before Zoom. I could've understood a small sell-the-news reaction after the run, but if it had not been for Zoom, I'd wager we would have seen Slack trading in the $35s on a report like this.
The shares have not retraced inside this wide range of $28 to $32.55 with $30.50 as the intermediate swing point. If the stock closes back above $32.50, then I would anticipate bulls trying to walk this higher against into the $35.50 area. If we break below $30.50, then I'd look to be a buyer in the $28 to $29 area.
I do think the AWS tie-up presents an interesting takeover scenario going forward. We already know Amazon competes with Microsoft (MSFT) with AWS versus Azure in cloud computing. However, if Amazon were to take a stake or take over Slack it would allow Amazon to challenge Microsoft Teams as well. Amazon might be able to parlay a win in that space into AWS business or vice-versa.
With a market cap 62 times larger than Slack's, a takeover using stock would barely be dilutive to Amazon even at twice the current value of Slack. For the record, I don't think Amazon would need to bid twice the current value; however, it is something to keep in mind going forward and why I believe Slack is still worthy of consideration even after a disappointing reaction to the current quarter and future guidance.