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Slack Stock's Roller-Coaster Move: What's Behind It

Shares of Slack Technologies (NYSE: WORK) saw some significant volatility early this week. On Monday, shares surged 15.4% before trading of the stock was halted. After market hours on the same day, however, shares fell 8%.

The stock's rise and fall both had to do with news that surfaced about IBM (NYSE: IBM) being the workplace collaboration specialist's largest customer. But the initial report about it made it sound like the deal just happened, with IBM recently rolling out Slack to its 350,000 employees. IBM is a significant customer, and it's a nice win for Slack. But it didn't happen overnight.

Image source: Slack.

Slack's biggest customer

When trading paused on Monday following reports of IBM becoming Slack's largest customer, Slack released an 8-K explaining that IBM is, indeed, its biggest customer -- and has been for years.

"The article stated that International Business Machines Corporation ("IBM") purchased Slack for all of its employees worldwide and further that IBM is Slack's largest customer to date," read the filing with the Securities and Exchange Commission (SEC). "IBM has been Slack's largest customer for several years and has expanded its usage of Slack over that time."

Downplaying the chance that recent developments with IBM could have a material incremental impact on the company's fiscal fourth-quarter results, Slack also said in its filing that it is "not updating its financial guidance for the fourth quarter of the fiscal year ended January 31, 2020, or for the fiscal year ended January 31, 2020."

IBM highlights Slack's robust capabilities

Still, the fact that IBM relies on Slack for workplace collaboration highlights the capabilities and scale of the technology company's communication platform.

Referring to IBM's "wall to wall" adoption of Slack for workplace collaboration, Slack CEO Stewart Butterfield told Business Insider that "it's basically the maximum scale that there is, so we now know that Slack will work for literally the largest organizations in the world."

IBM has around 350,000 employees, so its big bet on Slack does draw positive attention to the platform's ability to work in a massive organization, boding well for Slack's ability to win over more business from more of the world's largest companies.

Slack is growing incredibly fast. In the company's third quarter of fiscal 2020 (ending Oct. 31, 2019), its revenue soared 60% year over year. The number of paid customers contributing more than $100,000 in annual recurring revenue rose 67% year over year to 821, with more than 100 of these customers being added in fiscal Q3 alone. In addition, the company said it exceeded 50 paid customers contributing more than $1 million in annual recurring revenue.

The company guided for full-year fiscal 2020 revenue to rise 55% to 56% year over year, with fiscal fourth-quarter revenue expected to climb 41% to 43%.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Slack Technologies. The Motley Fool has a disclosure policy.


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