Slack shares plunge 20 percent post showing results: firm explains how the pandemic and its rivalry with Microsoft are slowing growth - Slack shares plunged 20% in trading at the close of markets, after its financial results exceeded Wall Street's expectations in terms of revenue, but not in terms of pace of growth.
The telework platform has announced revenues of 215.9 million dollars during the second quarter of its fiscal year, about 183.5 million euros at the current exchange rate. It represents an increase of 49% over the same period last year, and is on par with the growth that the company has recorded in the last two quarters.
However, if you compare these figures with other companies that have benefited from the telework boom, such as Zoom, whose revenues have skyrocketed by 355%, Slack's numbers are disappointing for many analysts and investors.
"In any other year, these numbers would be solid. But the growth of Zoom, Microsoft Teams, Cisco Webex and others in the sector casts a lot of doubt on what Slack's growth will be like, " said Dan Newman, analyst at Futurum Research.
Despite exceeding the expectations that had been agreed on Wall Street on its profits in the quarter, Slack's results are not a resounding success as they have been Zoom's results, abound several analysts a Business Insider.
If Slack were to grow as Zoom has done, "it would have signaled in the previous quarter, and this quarter would have been important, too," continues Newman of Futurum Research. "And given the boom in telework, the company has failed to impress in either quarter."
Rishi Jaluria is an analyst at D. A. Davison and is more optimistic: he believes that this is a case where " the short-term winds against weigh more than the long-term winds in favor."
Slack shares plunge 20 percent post showing results
In a meeting with shareholders, Slack CEO Stewart Butterfield explained that many customers of the platform are facing economic hardship because of the COVID-19 pandemic.
Slack has seen many of its customers leave and growth in paid users has declined since the beginning of the year, as detailed in its latest financial results. This means that many customers are reducing their subscription plans to fewer workers, and others are abandoning their subscriptions.
Some analysts speculate that Microsoft Teams, one of Slack's rivals, is also taking a toll on growth on the platform.
Although Slack has seen an increase in the number of Customers-8,000 new paid subscribers during the quarter, to be precise - growth is being slower than Wall Street expected.
Slack's growth during the first quarter of the fiscal year was also disappointing, so with the financial results the firm showed on Tuesday, the company is already accumulating two quarters with figures similar to previous pandemic figures. Their rivals have boasted of much faster growth.
Butterfield explained this week to analysts that many companies are adjusting budgets more during the second quarter and that " the urgency of the moment favors short-term solutions to solve immediate problems." So I suggested that this dynamic does not benefit Slack. The firm's Chief Financial Officer, Allen Shim, argued that the current situation is making its sales cycle longer.
During the first half of the year, Slack granted aid worth up to $ 11 million to its pandemic-affected customers to alleviate their expenses, of which $ 7 million was granted in the first quarter alone. Shim also argued that only 20% of its customers are from industries directly affected by the pandemic.
As businesses sink and reduce their spending on Slack, the platform has seen at least 50 customers who paid between $ 100,000 and $ 150,000 a year —between $ 85,000 and $ 130,000— have lowered their subscription plans and now pay between $ 50,000 and $ 100,000 —between $ 42,000 and $ 85,000.
Last year, in the same quarter, only 10 customers accounted for this reduction in this spending range at Slack.
"When our customers adjust, freeze hiring or hire at a much lower rate, net money retention is negatively impacted," said Slack'S CEO. "This impact is direct. And because of our tight billing policies, and the substantial number of small users with monthly plans, it seems that this has been reflected in our numbers much faster than in other firms in the industry."
Some analysts also point out that Slack's growth could remain stable and not soar due to its competition with Microsoft Teams. Microsoft offers Teams as part of its productivity application package, Office 365, which many firms already have access to. This makes Teams a convenient option for many firms that have had to telework.
"I think information technologies are becoming more standardized, and many firms will be choosing Teams, which is already part of Office 365," Newman said.
Wedbush's Dan Ives agrees and believes Microsoft Teams is" a clear threat " to Slack.
Even before the financial results were presented, many analysts argued that Slack was under increasing pressure for its competition with Teams. In July, Slack filed an antitrust lawsuit against Microsoft and its Teams with the European Commission.
Butterfield, the CEO of Slack, however, cleared these shadows during the presentation of the results. He maintained that the ratio of 'victory' against Teams remains the same on the part of Slack. "There is no doubt that it causes some friction and that we must overcome them, but it puts no limit to our growth."
Slack shares plunge 20 percent post showing results