Slack got smacked

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Last Tuesday, Slack reported expectations-beating earnings but its stocked tanked. This is because Slack didn't deliver the Zoom-like growth that investors were expecting. 

Slack and Zoom were both expected to be work-from-home (WFH) winners but their realities are turning out to be very different. While Zoom's sales more than quadrupled compared to the same quarter last year, Slack's grew at 49% - just about the same as the previous two quarters. So why is Slack slacking on growth while Zoom is crushing all expectations?
  • The process to buy Slack is much longer than Zoom's. Slack's primary customers are large enterprises. Convincing these enterprises to buy Slack requires salespeople and involves endless negotiations with IT departments who always start with "but we have Microsoft Teams for free".
  • Zoom is more plug-and-play. Unlike Slack, Zoom doesn't require integration with any other enterprise software or tools. Also, the alternatives to Zoom are archaic tools like Webex that take years to set-up and come with very hefty licensing fees. 
Because of the WFH shift, investors were expecting Slack to be a major pandemic success story so its stock soared from March to June. Given the results of the past two quarters, investors have realized that there is a big disconnect between expectations vs. reality. Hence, they have sent the stock back to the pre-pandemic levels. 

What are the future prospects for Slack? Is it a good long term investment?

As mentioned in a previous post, what's limiting Slack and slowing its growth down at the moment is Microsoft Teams. It’s clear that Teams has reduced Slack’s addressable market and Slack will not come near the heights its investors envisioned when it filed its IPO. However, its position is not so vulnerable and it will be profitable in the future. For more information on what's working and not working for Slack, check out my previous blog: Slack to Microsoft Teams: "Damn You!"
 

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

 

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