Calculated Billings are a concern. The narrative that Slack is a “Covid-trade” or a “WFH-trade” just doesn’t seem to be true. Businesses don’t need Slack the same way they need ZM, CRWD and others. Potential customers aren’t focused on shifting from email in the middle of a crisis in the same way as they are focused on getting video-conferencing up and running.
In the 10Q under section “Update on Covid”, sub-section “Calculated Billings” they call it a lumpy metric because they practice what they call “Fair” Billing.
Only amounts invoiced to a paid customer in a given period are included in Calculated Billings. While we believe that Calculated Billings provides valuable insight into the cash that will be generated from sales of our subscriptions, this metric may vary from period-to-period for a number of reasons, and therefore has a number of limitations as a quarter-over-quarter or year-over-year comparative measure. These reasons include, but are not limited to, the following: (i) a variety of contractual terms could result in some periods having a higher proportion of annual subscriptions than other periods, (ii) as we focus on sales to large organizations, the lengthening of our sales cycle, and the variability in the timing of the execution of these larger transactions, (iii) fluctuations in payment terms affecting the billings recognized in a particular period, and (iv) seasonality in our billings, with a greater proportion of our billings occurring in our fourth quarter, following typical enterprise software buying patterns. Because of these and other limitations, you should consider Calculated Billings along with revenue and our other GAAP financial results.
Other than Calculated Billings they had solid results:
Revenue increased 48.9% yoy to approx $216 million in the quarter. They had guided for 44% at the high end.
Balance Sheet: (From 31 Jan 2020 to 31 July 2020)
Cash & cash equivalents + marketable securities increased 95% yoy to ~ $1.5 billion from ~ 785 million
Long-term debt is at ~ $630 million in the form of Convertible Senior Notes. This is up from $0 yoy
Class A + Class B shares outstanding increased 4.86% yoy, and 1.21% sequentially to 570,524,602
Cash flow statement:
Cash from operations improved yoy to ~ $14 million from ~ 300 thousand. And improved sequentially from ~ 8.7 million. They have a 6.7% Op cash flow margin compared to 0.22% last year. And 4.33% last quarter
FCF improved yoy to ~ $10.7 million from NEGATIVE $7.8 million. And improved from $3.6 million last quarter. They have a FCF margin of 5% this quarter compared to (5.43%) last year. And compared to 1.83% last quarter. They also guided to FCF breakeven for this Fiscal Year compared to (9.84%) last fiscal year
Company Specific metrics:
Calculated billings increased 25% yoy.
Calculated billings yoy rates going back in quarters is: 24% (this Q), 38% (last q), 47% (Q4 '20), 47% (Q3 '20), 52% (Q2 '20), & 47% (Q1 '20)
Net Dollar Retention Rate was 125% compared to 138% last year. Going back in quarters it looks like this: 125% (This Q), 132% (Last Q), 132%, 134%, 138%
Paid Customer adoption was 30%. Going back in quarters it was: 30% (this Q), 28%, 25%, 30%, 37%
Adj GM was 88% compared to 87% last year, and 89% last quarter
Adj OM was NEGATIVE 3% compared to NEGATIVE 38% last year, and NEGATIVE 8% last quarter!
Adj NM was NEGATIVE 1% compared to NEGATIVE 36% last year, and NEGATIVE 7% last quarter!
Adj EPS was net breakeven compared to NEGATIVE 14 cents per share last year, and NEGATIVE 2 cents per share last quarter!
TTM P/Sales is ~ 18
An investor has to consider whether a decelerating Calculated Billings rate this quarter portends much lower revenue and a deterioration in profitability in the future. Either way, Slack is not benefitting on aggregate from Covid19, and they do have competition from Microsoft. So someone would have to believe they have a superior product that will win out despite those challenges. To me, that uncertainty is why they have a relatively “low” valuation.