Slack ( WORK)

I am a little puzzled as to why Slack is at a lower valuation compared to many other Covid SaaS stocks. Can anyone please share if you have any inputs on why Slack should be at a lower valuation than say OKTA or CRWD or even ZM?
Slack has a high gross margin ( > 85%) and it is already published by their CEO that they are seeing wide surge in traffic and adoption. The stickiness should be significant once employees keep using slack . I am aware of competition from Teams ( MSFT) but that is true for any other companies that are at higher valuation currently due to digital adoption. Slack is at a lower price point than pre-Covid. So I am a bit puzzled.

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I am a little puzzled as to why Slack is at a lower valuation compared to many other Covid SaaS stocks. Can anyone please share if you have any inputs on why Slack should be at a lower valuation than say OKTA or CRWD or even ZM?

Bigger losses at lower growth rates.

Slack still needs to prove to the market it’s on track to become a profitable, mission-critical platform rather than just a cool niche product for the tech savvy. Their recent shared channel function allowing external organizations to link with each other should be a pretty good gauge in which direction they are trending. Next month’s earnings are setting up to be a binary event. Either the metrics prove Slack deserves to ride the same rocket as the other names above or it will likely be relegated into the second tier of stocks in this sector.

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  • Bigger losses at lower growth rates.

Not sure if I see the past growth rate ( which is pretty high too) reflective of the future after Covid19. Also gross margin is in mid eighties so losses are comping from investments they are making in the product itself which is introducing more adoption, integration and hence stickiness. One of the feature you mentioned is about shared channels which came due to such investments in R&D.

  • just a cool niche product for the tech savvy

Slack is not complex to handle for non tech savvy and probably easier to operate than hundreds of emails in the inbox. Non tech companies are also their clients and growing. I am thinking currently that the Covid19 trigger will actually help them push into these clients who have been laggards in adoption . These companies will now have more employees to work from home and enterprises would need to think of platforms beyond emails.

I think market is treating Slack’s stock differently because of lack of momentum earlier. This happened to TWLO before earnings and markets were not sure or not paying too much attention to Jeff Lawson’s tweets where he had clearly mentioned about the traction TWLO was seeing.

Let’s see how this plays out after earnings. It is possible that Slack will report high losses due to so many free users ( similar to Zoom’s free users) and markets may not respond favorably. But I think there is a good chance that markets will realize how big of a transformation Slack is undergoing currently due to work from home push and respond similar to TWLO

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I feel like Slack’s name brand is the biggest thing it has going for it.

I have to wonder if having real viable open source competition impacts them. There is no real open source competition for Zoom, nor is there likely to be, since it has so many critical layers to get right AND you use it for external communication in common use cases. Message groups on the other hand are mostly internal. The idea of connecting to external teams via chat feels like an edge case to me.

Furthermore, the kind of larger enterprises they probably want as clients are also the most likely to be capable of doing it in-house with an open source solution. It is way cheaper and more flexible to do so. Look at the logos at this Mattermost link: https://mattermost.com/customers/

  • Mattermost (https://mattermost.com) - Open source and SaaS offerings
  • Rocket.Chat (https://rocket.chat) - Open Source, “self-managed” and cloud SaaS offerings
  • Discord (https://discord.com) - Mostly known for games but the site targets communities and families.
  • Google Chat (the new one…meh)

Just one example to read through:
https://mattermost.com/mattermost-vs-slack-total-cost-of-own…
Total Cost of Ownership: Mattermost vs. Slack Enterprise Grid
Mattermost customers enjoy huge savings of over 60% vs. Slack Enterprise Grid users. Those savings are further amplified with more users thanks to economies of scale.

Mattermost offers a cost-effective, enterprise-grade, private cloud alternative to Slack’s SaaS-only workplace messaging service.

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I am a little puzzled as to why Slack is at a lower valuation compared to many other Covid SaaS stocks. Can anyone please share if you have any inputs on why Slack should be at a lower valuation than say OKTA or CRWD or even ZM?
Slack has a high gross margin ( > 85%) and it is already published by their CEO that they are seeing wide surge in traffic and adoption. The stickiness should be significant once employees keep using slack . I am aware of competition from Teams ( MSFT) but that is true for any other companies that are at higher valuation currently due to digital adoption. Slack is at a lower price point than pre-Covid. So I am a bit puzzled.

There seem to be many reasons to like Slack as an investment. I don’t use Slack or any other collaboration software. From what I’ve read, those who have used both Slack and Teams swear that Slack is hands down far superior. Slack has been called “best of breed.” It has many bells and whistles including smooth integration with video and voice (Zoom among others). I also understand that Slack has built its product over many years and it would be very difficult to replicate. But having the best product is not necessarily a recipe for success. The WFH paradigm seems to be creating a surge in business for Slack and it has been described as very “sticky.” This surge may be the accelerant that cements Slack’s position in the collaboration niche.

The price is well off its lows and its not cheap at about 20 times projected forward revenues. On the other hand, the projected revenues are likely very underestimated given the WFH shift. And this market seems willing to pay high prices for growth.

I’m still on the fence on this one. It may be worth at least a small bet.

Dave

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I think this is a very good question.

For me, Slack is ultimately not a must-have and that is why investors value it lower than other tech companies. It doesn’t provide core platform services like Okta, Twilio, Crowd Strike, or Datatdog. It’s a communication tool. Yes, it may be one of the best, but no one absolutely needs it. Plus, switching costs are low. I can swap it out anytime to use Teams, G Chat, or even Whatsup. And I do this regularly. You can’t swap out Okta on a whim.

While many startups or tech-forward people love Slack it hasn’t achieved the level of popularity that Zoom has. Both communications tools are great, but Zoom has massive traction, and that matters for this category. These products benefit from network effects that an ever-increasing user base provides. If they keep scaling, and I believe they can, they eventually achieve some level of ubiquity. Then no one bothers with the alternatives. It’s just too much hassle for most people.

FYI I am long Slack (obviously) and think it has a lot of long term growth potential.

For me, Slack is ultimately not a must-have and that is why investors value it lower than other tech companies. It doesn’t provide core platform services like Okta, Twilio, Crowd Strike, or Datatdog. It’s a communication tool.

I have reached a similar conclusion with a further wrinkle. Since WORK is not a must have it is more likely that it will slow down while we recover from COVID. Resumption of rapid growth may take a bit of time.Eventually since it is a quality product its longer term success is probable.

And not to put too fine a point on it, I always thought there was only one level of ubiquity.

Cheers.

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And not to put too fine a point on it, I always thought there was only one level of ubiquity.

LOL

Ubiquity only in a particular segment.

I don’t know if Slack will ever appeal beyond tech startups and engineering/product teams. It’s customizable and supports a lot of developer tools. Which is why they love it. Yes, that segment is huge and I believe they will dominate it.

But it doesn’t integrate well with Salesforce. I can’t see it ever being adopted by a big sales team outside of some tech companies and that is perhaps a larger market.

,But it doesn’t integrate well with Salesforce. I can’t see it ever being adopted by a big sales team outside of some tech companies and that is perhaps a larger market.

Interesting point. Now I am beginning to wonder about their potential relative to other choices available now.

long WORK @4%

Our HOA President (MBA in progress) introduced Slack and I used it briefly. It didn’t seem particularly user-friendly to me. My view was that it was all about restricting who could see and comment on things and creating threads (which had to be communicated by links as there seemed threads weren’t on menus or could be found by search).