Q220 Slack and info

Company: Slack (Work)
Price: $24.49
Market Cap: 9,025,373,170
P/S: 17.78

Mission Statement:

Our mission is to make peoples working lives simpler, more pleasant and more productive.

What is Slack:

Around the world, over 600,000 organizations in over 150 countries have turned to Slack as the place to communicate, collaborate, and get work done. Over 10 million people inside those organizations – accountants, customer support reps, engineers, lawyers, journalists, dentists, chefs, detectives, executives, scientists, farmers, hoteliers, salespeople, and many others – collectively spend more than 50 million hours in active use of Slack in a typical week, on either a free or paid subscription plan. They do so because Slack is a new layer of the business technology stack that brings together people, applications, and data – a single place where people can effectively work together, access hundreds of thousands of critical applications and services, and find important information to do their best work.

The most helpful explanation of Slack is often that it replaces the use of email inside the organization. Like email (or the Internet or electricity), Slack has very general and broad applicability. It is not aimed at any one specific purpose, but nearly anything that people do together at work.

Unlike email, however, most of this activity happens in team-based channels, rather than in individual inboxes. Channels offer a persistent record of the conversations, data, documents, and application workflows relevant to a project or a topic. Membership of a channel can change over time as people join or leave a project or organization, and users benefit from the accumulated historical information in a way an employee never could when starting with an empty email inbox. Depending on the size of the organization, this might provide tens, hundreds or even thousands of times more access to information than is available to individuals working in environments where email is the primary means of communication.

Also unlike email, Slack was designed from the ground up to integrate with external software systems. Slack provides an easy way for users to share and aggregate information from other software, take action on notifications, and advance workflows in a multitude of third-party applications, over 1,500 of which are listed in the Slack App Directory. Further, Slack’s platform capabilities extend beyond integrations with third-party applications and allow for easy integrations with an organization’s internally-developed software. During the three months ended January 31, 2019, our more than 10 million daily active users included more than 500,000 registered developers. Developers have collectively created more than 450,000 third-party applications or custom integrations that were used in a typical week during the three months ended January 31, 2019. Additionally, we are currently developing low-code solutions to create integrations and workflows entirely in Slack, suitable for all users and based on a simple, non-technical user interface.

Executive Officers:

Stewart Butterfield. Mr. Butterfield co-founded Slack and has served as our Chief Executive Officer and as Chairman of our board of directors since February 2009. From April 2005 to July 2008, Mr. Butterfield served as General Manager of the photo-sharing website Flickr at Yahoo! Inc., following Yahoo!’s acquisition of Ludicorp Research and Development Ltd. (which developed Flickr), where he served as Chief Executive Officer from May 2002 to April 2005. Mr. Butterfield holds a Master of Philosophy from the University of Cambridge and a Bachelor of Arts in Philosophy from the University of Victoria.

Allen Shim. Mr. Shim has served as our Chief Financial Officer since January 2018. Mr. Shim joined Slack in March 2014 and served as Senior Vice President of Finance and Operations from March 2014 to January 2018. From September 2008 to March 2014, Mr. Shim served as Vice President of Finance and Treasurer at YuMe, Inc., a data analysis company for television advertising that was acquired by RhythmOne in 2017. From March 2005 to September 2008, Mr. Shim worked in business operations at Yahoo! Inc. Mr. Shim is a Chartered Financial Analyst (CFA) charterholder and holds a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania.

Robert Frati. Mr. Frati has served as our Senior Vice President of Sales and Customer Success since February 2018. Mr. Frati joined Slack in May 2016 and served as Vice President of Sales and Customer Success from May 2016 to February 2018. From January 2006 to May 2016, Mr. Frati served in various roles at salesforce.com inc., a customer relationship management software company, most recently as Senior Vice President, Commercial Sales, Asia Pacific from August 2014 to April 2016. Mr. Frati holds a Bachelor of Arts in Political Economy from the University of California, Berkeley.

Cal Henderson. Mr. Henderson co-founded Slack. He has served as our Chief Technology Officer since December 2012 and served as Vice President of Engineering from April 2009 to December 2012. From June 2005 to April 2009, Mr. Henderson served as Director of Engineering at Yahoo! Inc. From December 2003 to June 2005, Mr. Henderson served as Director of Web Development at Ludicorp Research and Development Ltd. Mr. Henderson holds a Bachelor of Science in Software Engineering from the University of Central England.

David Schellhase. Mr. Schellhase has served as our General Counsel and Secretary since December 2016. From February 2015 to April 2016, Mr. Schellhase served as Chief Operating Officer at Honest Work Corporation, a software company that was acquired by Twitter, Inc. From June 2011 to January 2015, Mr. Schellhase served as General Counsel and then Strategic Advisor at Groupon, Inc., an e-commerce marketplace company. From July 2002 to May 2011, Mr. Schellhase served as General Counsel at salesforce.com, inc. Mr. Schellhase holds a Juris Doctor from Cornell Law School and a Bachelor of Arts in European History from Columbia University.

Tamar Yehoshua. Ms. Yehoshua has served as our Chief Product Officer since January 2019. From August 2010 to January 2019, Ms. Yehoshua served in various roles at Alphabet, Inc., an Internet-related services and products company, first as Director, Product Management, until September 2013, and then as Vice President, Product Management, in leadership roles on search, identity, and privacy. Since March 2019, Ms. Yehoshua has served as a member of the board of directors of ServiceNow, Inc., a publicly traded cloud computing company. Since October 2017, Ms. Yehoshua has served as a member of the board of directors of Yext Inc., a publicly traded online brand management company. From December 2015 to May 2017, Ms. Yehoshua served as a member of the board of directors of RetailMeNot, Inc., a publicly-traded company operating an online marketplace that aggregates discounts and offer codes. Ms. Yehoshua holds a Master of Science in Computer Science from the Hebrew University of Jerusalem and a Bachelor of Arts in Mathematics from the University of Pennsylvania.

The Numbers: in thousands

	            Q318      Q418      Q119      Q219      Q319       Q419       Q120      Q220	
Revenue		    58,046    68,459    80,919    92,018    105,648    121,967    134,821   144,973 	
Net Income(n-Gaap)  -26,258   -106,476  -24,882   -31,860   -47,672    -36,269    -33,332  -359,562
FCF	            -1,388    -11,461   -14,969   -7,722    -43,467    -31,081    -34,203   -7,871

More numbers

                     Q318     Q418      Q119      Q219       Q319       Q419       Q120     Q220    
Calculated Billings  74,484   88,231    102,080   114,767    126,457    173,668    149,637  174,800
GM Profit(N-Gaap)    88%      88%       88%       88%        87%        87%        86%      87%            
Paid Cust            52,000   59,000    67,000    73,000     81,000     88,000     95,000   100,000       
Cust over 100000     254      298       351       412        491        575        645      720            
Net Dollar Ret.      151%     152%      149%      146%       144%       143%       138%     136%

Slack just had their first conference call since their IPO. The stock has been drifting down since their Conference call. But all of the SaaS stocks have been drifting down. They had a glitch in the quarter that affected 1 to 3 percent of their customers. They had to many people on their system which caused some customers to be out of service. They said that they have been ramping up their platform but they haven’t been able to keep up. To understand this a little better, Slack tells their customers that they will be up 99.99% of the time. That is unbelievable because most companies say that they will have up time of 99.9% of the time. Well Slack is now going to change that to be more in line with industry standards of 99.9%. But they still had to pay back 8 million to their customers for missing their Service Level Agreement (SLA). If they wouldn’t have had this charge they would have had revenue growth of 67% instead of 58% and calculated billings growth of 60% instead of 52%.

Slack came out this quarter with a new product, shared channels, and they hope that this will give them a network effect. They have 20,000 customers using it in beta . What shared channels allows their customers to do is share work channels with other companies they are collaborating with. They are hoping that when customers start working with other groups of companies that they will want to use slack and that will pull more companies into buying slack.

They have really been pushing into the enterprise companies and this shows with their growth of 75% in companies over 100,000. This needs to be kept an eye on because if they continue to grow this at a high rate then their new product shared channels is taking off and they will be developing a moat.

This was a good quarter for Work and would have been a great quarter if they wouldn’t have had that small SLA problem. They do not believe this will happen again. I bought shares because of how fast this company is growing. They had a one time problem and their shares have been shellacked, this is usually a good time to start a position. They are down 42% from their all time high and if they develop the moat around shared channels this could be a big hit. Although I heard about Teams from Microsoft, We will have to see what happens. Some companies will use Teams because it is cheap and they already have Microsoft 360 but for companies that are serious about collaborating especially across companies, Slack would seem to be the best choice. Microsoft Teams can work across companies but they emphasize that you must use Skype for Business and be set up correctly. I would like to see just how easy that is to set up.



I wanted to add that Slack has one of the highest net dollar retention rates of all the companies we follow:


Forbes has Slack’s NDRR at 143%, which is 3% higher than Zoom’s. I think this stickiness is what will drive Slack to be successful in the long run.

I say “long run,” because I do think Slack has to come back from their current dip since the IPO. I’m not a fan of comeback stocks, but I think this comeback will be a mild one to complete. IMHO, the current slump is mostly driven by the sector rotation affecting all Saas Stocks. This makes the current time a good entry point. My other hesitation was Slack’s large market cap of 14 or so Billion, which can sometimes cause growing pains.

After weighing the above, I sold out of Fastly last week and initiated a 4% position in Slack w/ the proceeds.


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My concern with Slack is two parts

  1. Meaningful decelerating revenues. 57% was a deceleration of 10% from last quarter. Ouch.

This could be saved if next quarter is a similar beat and YOY looks flat.

I’m not sure where the bottom is but original S1 was 80% rev growth

  1. Growth is coming from existing customer base.

As pointed out, Forbes has Slack’s NDRR at 143%, which is 3% higher than Zoom’s.

So we had 14% YOY new revenues from new customers? This is the battlefield I’m watching. This is my lesson from PVTL.

I think WORK is probably fairly valued relative to the rest of stocks discussed and followed here.

However, I have two caution flags

  1. Optionality. What else can Slack offer?

  2. Heavy dependence on existing base. Microsoft 365 is growing like wildfire. Teams, while nothing like Slack, is growing.

I’ll keep monitoring because Slack is an incredible product, however, i want to see evidence to take care of my concerns above.

Keep studying.

Just a Fool

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Meaningful decelerating revenues. 57% was a deceleration of 10% from last quarter. Ouch.

I addressed this in my report. They had a one time issue with an outage that cost them 8 million. Without this one time charge they would have had revenue growth of 67%.

As pointed out, Forbes has Slack’s NDRR at 143%, which is 3% higher than Zoom’s.

That is old information. Their NDRR last quarter was 136%. This has been coming down if you look at the numbers I reported you would see this. One interesting point is though, Zoom and Slack both started out in 2013 at about the same time and they about the same run rate now of around 600 million.

1. Optionality. What else can Slack offer?

I think their shared channels will offer them options.

  1. Heavy dependence on existing base. Microsoft 365 is growing like wildfire. Teams, while nothing like Slack, is growing.

If you looked at the numbers they grew their over 100,000 base by 75% YoY and their customer base by 37%. Not sure I see a heavy dependence.

Also if you look at Yahoo and Morningstar they are reporting a marketcap of around 14 billion. If you look at the 10Q of Work and compute the marketcap it comes out to around 9 billion. That is a huge difference and doesn’t make sense. Either they have a big amount of share that haven’t hit the market yet or Yahoo and Morningstar are getting their numbers wrong. Yahoo is reporting shares outstanding of 194.09 Million which makes their 14 billion marketcap even stranger.



Re: Market Cap
It’s all about the share count before and after they listed. They started the year with 500MM shares. I don’t know why or how they calculate weighted average shares for eps at 368MM for 2Q19.

373MM preferred shares converted to and added to common of 130MM at direct listing. Plus they added 30MM RSU’s. So $13B is correct.


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Agreeing with Joe, Slack’s third quarter Outlook says:

Non-GAAP net loss per share of $0.09 to $0.08, assuming weighted average shares outstanding of 544 million.

544 x $24/share = 13b


Thanks Joe, I appreciate the help.