Slack and Zoom are two of the biggest tech unicorns in the marketplace today.
Both companies have a lot in common. They’re both designed to improve the way that people in the modern workplace communicate and collaborate. Additionally, both Slack and Zoom have seen incredible growth over the years in terms of customer adoption and popularity.
On top of that, Slack and Zoom also entered the public market at the same time, releasing their IPOs almost one on top of the other. This gave us a chance to compare how different technology brands in the same space could achieve unique results in the market. For instance, while both Slack and Zoom have encountered issues on their path to success, Zoom seems to be accelerating into the future at break-neck speed, while Slack still struggles to hold down a profit.
So, what makes these two highly valuable and popular tools so different when it comes to their financial outcomes? We took a look at the latest earning reports to find out.
Zoom Achieves Phenomenal Success
From the moment it entered the stock market, Zoom has been the talking point of the communication and collaboration marketplace. Zoom (ZM) was one of the highest-valued stocks on the market when it went public in April at $36 per share. Zoom has even traded as high as $107 per share since then. According to the latest earnings report revealed by the company, Zoom’s growth won’t be slowing down any time soon. The total revenue growth for the business this quarter was 96%.
According to Eric Yuan, the CEO and founder of Zoom, the company has been delivering satisfaction to customers in the form of frictionless and simple unified communications. The overall success of the Zoom platform combined with the company’s ability to build trust among its target audience has translated to substantial financial results for the brand. In Q2 of 2019, profitability and cash flow have accelerated for the business. Total revenue for this quarter was an astounding $145.8 million. Additionally, total cash and marketable securities as of July 31st was $755.3 million.
Despite some rocky patches over the last couple of months, Zoom has maintained a consistent trend of growth and development, with a cash flow that looks better than ever. What’s more, it’s not just the revenue for Zoom that’s growing either. The latest reports indicate that the business is acquiring new customers at a sensational pace too. By the end of the second quarter for fiscal 2020, Zoom has 66,300 customers with more than 10 employees per customer. That’s an increase of 78% from the same period last year.
Additionally, Zoom also revealed that it has 466 customers contributing more than $100,000 in 12 months trailing revenue – an increase of 104% from last year. The brand has also seen an expansion of 12-month net dollar rate in customers with more than 10 employees above 130% for the fifth consecutive quarter in a row.
Slack’s Latest Earnings Report
So, why is Slack not performing as well as Zoom?
Slack was the first company to introduce the world to a new era of collaboration, powered by instant messaging, real-time file sharing, and constant communication. Around the world, countless businesses and individuals rely on Slack to stay connected. When Slack released its earnings report a few days ago, the company’s shares plummeted in value by 15% during after-hours trading.
Despite a boosted outlook for the year for Slack, investors were reluctant to hand over their cash. It would be easy to argue that the reason for this was the large-scale service outage that hit Slack just after it IPO’d. However, it’s not like Zoom hasn’t seen its share of issues too, particularly after a security issue left users wondering whether their cameras were safe after a Zoom call.
So, what’s going on?
Well, Slack’s sales growth has been slowing – perhaps caused by the rising number of competitive options on the market for collaboration today, like Microsoft Teams and Cisco Webex Teams. Slack reported an average revenue of $145 million in the latest quarter. That’s an increase of 58% compared to the same period last year, but it’s still slower growth than the 68% that Slack had in the first quarter of 2019. Slack is now projecting a total revenue increase for the year of between 51 and 52%.
While Slack’s earnings aren’t negative by any stretch of the imagination, they’re not as impressive as the growth the company saw last year of 82%.
Slack Is Growing, But It’s Still Unprofitable
Slack is one of the world’s favourite messaging and collaboration apps. However, like many tech peers in the community today, Slack’s revenue might be growing, but the company still isn’t profitable. In July, the company posted a net loss of around $0.14 per share for the latest quarter. Although this loss is better than Wall Street analysts had predicted, it’s still not the kind of thing that most investors are looking for.
Additionally, Slack expects its losses to continue growing. According to the earnings call for the company, Slack predicts that it will lose about $0.40 to $0.42 per share for the year – which is quite a bit worse than analysts have been predicting. According to the Chief Financial Officer for Slack, Allen Shim, the yearly loss is coming in part due to an increase in expenses dedicated to marketing and sales expenses.
Currently, Slack is planning to spend more than 50% of its revenue on marketing and sales to try and win over more large, enterprise customers. This is becoming increasingly crucial for Slack, as companies like Microsoft and Cisco dominate the enterprise market. Slack now has over 720 business customers paying more than $100,000 each year for the service – which is an increase from 75% from the previous year.
It seems that the reason for the vast disparity between Slack and Zoom is clear. While Slack might have been the first collaboration tool to change the market once and for all, it’s no longer a pioneer. The company is struggling to differentiate itself in a space where Microsoft and Cisco, as well as other competitors are ploughing more money into collaborative solutions than ever before.
On the other hand, Zoom stands out as the ultimate tool for video-first collaboration, which helps the business to maintain it’s a unique presence in an increasingly cluttered marketplace.
