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Is Slack the New Blackberry?

Posted on Friday, December 6th, 2019 by Chris Markoch

Is Slack the New Blackberry?

Slack (NYSE:WORK) won’t make the list of the top technology stocks. But it will make the list of the most debated. Since its initial public offering (IPO) in June 2019, Slack has drawn a lot of attention from bulls and bears alike. The bulls appeared to get a lift on Dec. 4 when the company announced better-than-expected quarterly results. However, the stock failed to find clear direction and, at one point, dropped as much as 6%.

Slack has yet to be profitable

In only its second earnings report, the company reported a negative EPS of 2 cents per share. This was however much better than the consensus expectation for negative 8 cents per share. The company also beat analysts’ expectations for revenue. Slack reported $168.7 million in revenue compared to the expectation for $156 million. This was a 60% increase from the prior year.

The all-important forward guidance for Slack was in-line with analysts’ expectations. The company forecast fourth-quarter revenue to be between $172 million and $174 million. The consensus estimate is $172.9 million. As for the bottom line, Slack is expecting to record a loss between 6 cents and 7 cents per share. Analysts predict a 6 cent loss per share.

One of the reasons for the increased revenue is the rapid sales of the company’s messaging service. The company gained just over 100 customers that pay over $100,000 in annual recurring revenue. This is in addition to a nearly 70% increase in customers spending over $1 million per year (50 as opposed to 30).

What is Slack?

For the uninitiated, Slack is a collaborative software tool. Companies and groups of all sizes create channels that allow a single hub for messaging, sharing files and tools. The benefit is the ability of an organization to save time by collaborating together.

 Slack falls into the software-as-a-service (or SaaS) category which is one of its greatest strengths. Once users subscribe to it services, it has the potential for a steady revenue stream. And since users express a high satisfaction rate with Slack, that’s not just wishful thinking.

Slack is David to Microsoft’s Goliath

Ever since Slack launched its IPO, analysts have become entrenched in their bullish or bearish opinions. Much of the debate centers around Microsoft (NASDAQ:MSFT) that has its own version of Slack, called Teams. This is a David and Goliath story. In this case, Slack with more than 12 million daily active users (DAUs) is in one corner. In the other corner is Microsoft’s Teams software that by Slack CEO Steward Butterfield’s own admission is likely to reach the 50 million DAU mark in six months. Butterfield further expects Microsoft to reach 100 million DAUs in the next year.

And here lies the problem. Teams are bundled into Microsoft’s existing Office 365 platform. Slack, by contrast, is a stand-alone software subscription. And while the company does have a free version, it also has a Standard package for small-to-medium-size businesses that has a monthly fee of $6.67 per active user. It's Plus package is for larger businesses and charges a monthly fee of $12.50 per active user. Its other level, Enterprise Grid, is according to the company’s web site for “extra-large businesses or those in regulated industries”.

 Slack has a chance to be sticky?

I’m old enough to remember when a Blackberry was not only the newest workplace collaboration tool but a status symbol. The devices became so popular, and essential, that the name “Crackberry” was often used to describe their addictive properties.

I’m not suggesting users will get addicted to Slack in the same way they did to their Blackberry. However, even in 2019, I hear some former Blackberry users long for their old device. The reason? It was easy to use. It became familiar. In technical terms, it became sticky.

And the ability to become sticky may be Slack’s best chance to stay relevant for as long as possible. Butterfield acknowledged that 70% of Slack’s DAU base also had Microsoft’s Office 365. That can be both a danger and an opportunity. It is not easy for companies to onboard employees to new technology like Slack. However, at least in the early going, it seems that once the employees use it they like it. And that means that, like the Blackberry, they will be reluctant to switch to something else. Or they may demand that Slack and Teams be used in tandem. After all, Teams does have some capabilities, specifically video, that are not part of Slack.

It remains to be seen how long Slack can stay relevant as the competitive field grows. For now, the stock is struggling to bounce too far off its IPO price. I suspect it will stay in that range unless it develops a compelling reason for businesses to stick with their software.




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