Slack Thoughts

Slack delivered a very strong quarter, but it managed to be a disappointment for many investors who believed WFH would cause revenues to soar. The quarter was a beat by $14M over the top end or 7.2%. The long term thesis is setting up quite well.

Slack isn’t showing revenue growth like Zoom or DataDog or Crowdstrike or Livongo to name a few. The nature of its product taking longer to implement doesn’t allow for that type of growth. That is not to say Slack can’t provide significant alpha. I’m beginning to believe they can for a very long time and are showing sustainable competitive advantages.

Let’s take a look at the important metrics.

Sales grew 49.6% to $201.7M which was a very slight acceleration from last quarter (49.1%). Gross margin increased to 89% from 87% a year ago. Net retention was flat from last quarter at 132%. Deferred revenues increased 56% to $375.3M. RPO increased a massive 97% to $379M*. Those are great metrics for almost any company save the super high fliers.

*RPO is calculated differently for Slack than most companies as they don’t include monthly nor annual subscriptions. They only include multi-year deals explaining why the number is low compared to overall revenues. Monthly and annual are captured in deferred revenues that also grew wonderfully.

The numbers are beginning to validate the real thesis here. We can’t ever be sure how it will play out, but trends are suggestive of a very strong company for years to come. The first thing we cannot ignore is Gross Margin of 89% in the very upper echelon of the companies we follow. RPO growing at 97% given how it is calculated based only on long term deals is very impressive and is showing enterprises value their solution and are going all in. 49% of sales came from the cohort over $100,000 ARR up from 43% last year.

Let’s then consider the stickiness of the product. Imagine Slack is the primary means of collaboration within your company and even outside of it (shared channels). You pay something like $6 per user per month. Slack integrates with a bazillion other applications. It is far better than email for collaboration. It is secure. Are you really going to rip that out? If a few years down the road, Slack decides to charge $7 per user, are you going to bail? I don’t think so. How about when they charge $8 per head an increase of 33% from today? Big deal for Slack. Not so much for your big organization. Not going to bail.

Slack signed up 90,000 new organizations this quarter of which 12,000 were paid subscriptions. They have 122,000 paid subscriptions in place with millions of users. While those numbers were influenced by the pandemic and are likely to mitigate throughout the year, they represent a very large base of evangelists.

As a final point on stickiness and network effects, shared channels is a key factor. Here is what the company had to say about shared channels:

Shared channels adoption accelerated in the quarter with over 41,000 paid customers now using shared channels, up from 32,000 at the end of Q4. We saw emerging network effects that drove growth in connected endpoints to over 250,000 in the quarter, up triple digits year over year.

Companies have poor alternatives, and they want to collaborate outside their organization. If they use an email list, it’s too disorganized and jumbled for a meaningful conversation. If they use a consumer messaging service, they sacrifice security or compliance. Shared channels give all the benefits that our customers have gotten from channels, organizing information and creating context but now for their external communications in an environment that they control.

This capability is unique to Slack and takes advantage of our purpose-built architecture to handle the complex considerations required to connect different organizations, all while maintaining the enterprise-grade security and scale that only Slack can provide.

In Q1, we entered the pilot phase for multi-word share channels, which will take shared channels from being a one-to-one connection between two collaborating organizations to a connection that can support as many as 20 distinct organizations working together securely, each with their own compliance settings, such as message retention policies. For me personally, the experience has been kind of magical. I’m in a multi-org shared channel with the CEOs of 15 other SaaS companies, including Shopify, Twilio, Splunk, Atlassian and Okta.

I’ll be interested to hear how others think and feel about the company.

Take care,


I am not surprised by the apparent lack of adoption of Slack as a WFH tool. Its primary function is not really more necessary whether one is onsite or working from home, from my perspective.

I work at a tech startup with approximately 350 employees and we have been using Slack for the past two years. Slack is absolutely our go-to method for communicating within the company. The phone call, hallway conversation, simple file exchanges, short internal email and mumblings during meetings have all been replaced by Slack.

When we went to WFR, Slack use increased a bit, but it was already the primary tool.

We have also been using Zoom for perhaps a year, and WFH increased Zoom use exponentially, since obviously all face to face meeting went remote. I average 4 to 5 Zoom meetings per day, and I cannot recall many where Slack was not also used to trade files, make private comments to a particular coworker, or send a Zoom link to start the meeting. These tools are very complimentary.

Slack allows a direct voice call to another user, so this is one area where the two products could compete. A quick chat = Slack call. Call more than one person or need video = Slack a Zoom link and initiate a Zoom meeting.

Slack seems to function well across all of my coworkers’ devices so compatibility seems good. PC/Mac versions also seem quite stable.

The ability to share a channel outside the company has been very useful when working with consultants. We want them to seen most of our conversation on a given topic, but there is much that they should not see. The ability to share just one channel is very useful.

In short, Slack increases our communication above and beyond what I think email could do. The odds that my company would give up that function seems near 0, and I am unaware of any other tool considered for this purpose, but that is our of my area. I do wonder what the barrier to entry is for this type of product. I can say the user experience has been very positive.

Hope this adds some user perspective the the product.

[I hope this message is in line with the rules of the board - I read them and think it is - but if not please accept my apologies.]


Hope this adds some user perspective the the product.

[I hope this message is in line with the rules of the board - I read them and think it is - but if not please accept my apologies.]

I found it very informative. Thank you!

Denny Schlesinger


Looks to me like a solid company with a strong product and excellent management.

My concern, which is a dealbreaker for me, is that you have to explain to people what it is. It’s not email. It’s “channels.” I get the gist of it and it does seem like a better way to collaborate.

But to me, it’s the Roku of corporate-facing stocks. The people who use it love it. But it’s not easy to explain to others. There’s no email, there’s channels. Hard to educate the world on what channels are and why they will radically improve the company.

In this video below the CEO talks about “Return on Communication” - I’ll bet it’s true. But good luck proving that metric to bean counters at large organizations faced with actually implementing this important software, which must take some time to get all up to speed.

The last company I worked for was set up in teams and collaboration/transparency was critical as it dealt with trading futures and options. In other words, one very stupid - or God forbid illegal - action could be calamitous and bring down regulatory wrath. Management was all over every email sent. Everything was done on Outlook and through internal Instant Messaging. And I don’t remember anyone ever complaining about it. In fact, I just texted the company’s President and of note, he owns the stock (and is down on it) but never even considered buying the product for the company!

Seems to me Slack is a good, even very good company that will never be an A+ performer in the stock market compared to our top dogs. I’ll be stunned if they don’t get acquired.

And as far as marketing… If you don’t like this intangible talk by all means stop reading now.

Seriously, how can you name your company something that people associate with other things that have nothing to do with the primary benefit? Slack is a strong, memorable word but people say “Cut me some slack” as in things are not going well and I need room to breathe. The word “Slack” is defined as 1. Not taut or held tightly in position; loose 2. (of business) characterized by a lack of work or activity.

So not only does the name not help define what it is or what it’s primary benefit is - but it’s got an association which is the polar opposite of the value proposition. "Characterized by a lack of work or activity.

So why did these brilliant (I mean that sincerely) founders pick this name? It means “Searchable Log of All Conversation and Knowledge”

Ahhhhhh, nope.

Nope. Nope. Nope. That’s not how great marketing works. Great marketing is immediately, visceral and bypasses rational thought with instant-association. Again, like Salesforce or Zoom. This is why I love Crowdstrike’s George Kurtz so much. The dude gets this stuff x1000. If all 50 security companies basically help keep adversaries out of your networks, the one that will win will be the one that is best known.

Slack, like Roku, reminds me of the Far Side cartoon where there’s an owner of a donut shop staring shocked at the register. He says “Well shoot. I just can’t figure it out. I’m moving over 500 doughnuts a day but I’m still just barely squeaking by.” As he says this a gigantic worker sweeping up looks guiltily at his flabbergasted boss.

Nothing but love to AJ and all Slack investors. But no way am I investing in something with this big an obstacle to hyper-growth and a key flaw in the messaging to boot.



Slack is still in its early innings and I would disagree about the marketing of their product. There have been a number of case studies about Slack’s parabolic growth early on and huge product adoption, here’s a few below:……

You can search for others pretty easily.

I have used Slack at several organizations now and it’s an incredibly intuitive and amazing platform. It’s awesome for internal communications, collaboration, and chat. It really reduces the need for email and makes communication a lot easier especially with your team.

For example, my company has an “announcements” channel where employees can make important company announcements and it’s a lot easier to engage with the announcement too. Remember back when email was the primary communication tool, a company announcement would result in a bunch of reply-all spam and communication that was all over the place. With Slack, you can easily thread conversations to organize communication:

You can also create public channels for site operations, where Slack can easily integrate with PagerDuty and all notifications will be pushed to the Slack channel.

You can also use public channels for general conversation about whatever and there are a ton of app integrations.

The way Slack channels and direct messages work, makes collaboration really easy about various projects. If you want to take a discussion offline, then you can easily create a private group direct message thread. 5 years ago, my day and life was get an email, respond to an email, deal with reply alls and then you would reply all to a thread that someone was also in the process of replying all and then you would waste all this time with asynchronous communication. Slack definitely prevents that.

Just like with other SaaS products, Slack scales as the organization grows which explains why their dollar-based expansion rate remains in the 130+ after several years.

Regarding their most recent earnings report, the big headlines I saw:

Q1	Q2	Q3	Q4	Total	
80.92	92.0	105.6	122.0	400.52	
134.8	145	168.7	181.9	630.40	57.40%
201.7				870.00	38.01% (guidance)

% YoY growth
66.58%	57.61%	59.75%	49.10%

50% revenue growth in Q1 beating their 40% Q1 guidance by a pretty considerable amount. Based on their guidance, they’ll be doing 44% next quarter ($209 M) and if they beat Q2 similar to their Q1 beat (about +13 M), they should easily be in the low 50s for revenue growth rate which is a continued re-acceleration of revenue.

Q1	Q2	Q3	Q4	Total
-14.9	-7.7	-43.5	-31.1	-97.2
-34.2	-7.9	-19.1	-0.8	-62.0
FCF Margin
Q1	Q2	Q3	Q4	Total	
-18.41%	-8.37%	-41.19%	-25.49%	-24.3%
-25.37%	-5.45%	-11.32%	-0.44%	-9.8%

Their FCF margin has improved considerably over the past few quarters and they actually were FCF positive this quarter and they are guiding for breakeven FCF by year-end.

Adj. Net Income
Q1	Q2	Q3	Q4	
-18.7	-30.1	-36.5	-30.4	-115.7
-28.7	-51.5	-12.3	-20.9	-113.4

Their net margins are improving and they are on the way to profitability after having become FCF positive this year.

Total customers (in 1000s)
Q1	Q2	Q3	Q4
		81	88
95	100	105	110

The past 5 quarter worth of customer adds:
Q1 '19: 7,000
Q2 '19: 5,000
Q3 '19: 5,000
Q4 '19: 5,000
Q1 '20: 12,000

Clearly COVID is having some impact, perhaps not Zoom-like, but it’s still very good in terms of customer growth.

Gross Margins also look very good and are slightly improving:

Q1	Q2	Q3	Q4
86.7	87.0	88.0	88.3

The biggest news though from the earnings report is that Amazon and Slack are deepening their partnership:…

Assuming just 25% of Amazon’s 840k employees use Slack, that’s a lot of paid customers.

I personally like where Slack’s business metrics are headed and I definitely see their revenue accelerating in the coming quarters. Obviously the slower billings growth is a concern, but it could be just a hiccup like Docusign’s 2019 Q1 earnings where billings slowed down pretty materially for a quarter before they blasted off like a rocket ship.


I fully agree of the stickiness to the platform

Butterfield mentioned more than once on the call about a 20-year timeline. They truly are an existential threat to email. Imagine going back 20 years ago and trying to explain email to people who had used fax machines and telephones for the previous 20 years

For me as an investor though, the question is what will the revenue growth be, and does that match my investment thesis?