Slack Reports Growth, Warns of Possible Microsoft Retribution

Slack did beat analyst expectations, but did not create a great deal of confidence as it warned against potential rebuttal from competitor

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Slack Q2 Earnings
Collaboration

Published: September 9, 2020

Ian Taylor Editor

Ian Taylor

Editor

Yesterday collaboration giant Slack reported its second-quarter results, just after stocks closed on Tuesday afternoon, announcing almost $216 million in revenue. The company’s stock fell by more than 15 percent after-hours when the company failed to meet analysts’ expectations when it came to billing.

With $215.9 million in revenue, Slack did surpass Bloomberg’s estimates for the company, which was $209.2 million. The company’s total number of paid customers – 130,000, with Slack gaining 8,000 additional customers. Bloomberg estimated that Slack would have a total of 127,950 customers. In terms of billing, Slack reached $218.2l million and not Bloomberg’s estimates of $232.9 million. Taking a look at the workplace collaboration giant’s adjusted loss per share, Slack broke even, while analysts had anticipated the company earning three cents per share.

Giving guidance for the third quarter, Slack said it expects to make between $222 million and $226 million, with analysts predicting revenues of $222.9 million. Looking at Q3’s adjusted loss per share estimate, Slack expects to hit six cents to five cents, with analysts putting Slack at five cents. I spoke with Principal Analyst, Workplace Transformation, CCS Insight, Angela Ashenden, to find out what this all meant for the collaboration giant, and she said:

“Heading into the quarterly report, analysts painted a mixed picture of the stock, with 12 buys, nine holds, four sell ratings, and the average price target at $34.67. Slack’s adjusted EPS beat estimates in four of the past four quarters”

She added, overall, Slack posted a good quarter, ahead of guidance, noting the company’s annual growth was less than half what we saw this time last year. “The challenge for Slack as it gets larger is how to maintain the pace of growth that investors have been expecting, and its struggles are of course thrown into sharper relief alongside Zoom’s stellar performance over the last couple of quarters.”

Slack’s focus, according to Ashenden, is its long-term growth strategy. She said Slack’s Q2 results indicate that their efforts over the last six months to make the path from free usage to paid usage more friction-free are starting to work. “Slack’s paid customer growth is up compared to Q2 last year.”

“There are still some headwinds relating to the current economic conditions, with an unusually large number of contractions in its large customer base”

Angela Ashenden
Angela Ashenden

At the same time, Ashenden contends, it’s positive to see Slack’s success in converting what she calls “a good number of its trial customers from the urgent shift to remote work at the start of the crisis – to paid customers so promptly.” She also believes that Slack Connect – will remain a crucial piece in the company’s growth strategy. “I think over time, we’ll see this take an even more central role in Slack’s overall business, as it effectively creates a new market opportunity that’s been overlooked or considered as too difficult by collaboration vendors in the past.” This is an area where Slack is investing heavily, she noted, adding – this is underlined by Slack’s acquisition of Rimeto in July.

Slack’s CEO, Stewart Butterfield, did warn investors during its earnings call, there could be possible retaliation against the company based on an antitrust complaint filed against Microsoft, in which Slack claimed Microsoft ‘illegally tied Teams to Microsoft Office,” implying the company had an unfair advantage over other collaboration companies on the market.

 

Customer ExperienceDigital TransformationFuture of WorkMergers and AcquisitionsMobility
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