Popular enterprise collaboration platform Slack (WORK) posted its first earnings report as a public company last night, and Wall Street was not impressed. That's despite the fact that the company boosted its full-year forecast, as investors instead worried about intensifying competition and slowing top-line growth. Shares have started to recover from yesterday evening's sell-off during after-hours trading.
Here's what investors need to know.
Image source: Slack.
Headline results
Revenue in the second quarter jumped 58% to $145 million, with billings of $174.8 million. Slack had to recognize significant stock-based compensation costs associated with the direct listing in June, which is common for the first quarter following a company going public. Slack posted a net loss of $359.6 million, or $0.98 per share, as reported under generally accepted accounting principles (GAAP). On an adjusted basis, the company only lost $0.14 per share.
The net dollar retention rate in the second quarter was 136%, meaning Slack has been able to get existing customers to spend more on its software-as-a-service (SaaS) platform. The company now has over 100,000 paid customers, of which 720 spend over $100,000 per year.
The real issue was Slack's guidance.
Bracing for deceleration
For the third quarter, Slack expects total revenue of $154 million to $156 million, which is ahead of the $153.8 million in sales that analysts are modeling for. That forecast would represent growth of 46% to 48%, continued evidence of top-line deceleration for a company that went public with a lofty valuation relative to SaaS peers. Non-GAAP net loss per share is expected to be $0.08 to $0.09 due to rising costs, while consensus estimates call for $0.07 per share in adjusted losses.
Slack raised its full-year forecast, and now expects revenue this fiscal year to reach $603 million to $610 million, up from its prior guidance of $590 million to $600 million. That should translate into a non-GAAP operating loss of $176 million to $180 million, better than the previous expectation of $182 million to $192 million. Adjusted net losses for the year should be $0.40 to $0.42 per share, a modest improvement compared to the earlier range of $0.41 to $0.44 per share.
Even though the company raised its revenue outlook, we're still talking about some serious deceleration. Revenue grew by 82% last fiscal year, so the 51% to 52% growth this year suggests that rivals like Microsoft are starting to chip away at Slack's popularity.
To be fair, CFO Allen Shim said Slack was taking a conservative approach to its guidance, so it could potentially post strong results. The company wants to "be realistic in terms of the visibility that we have going into the quarter," according to Shim. The finance chief added that he wants to be "pragmatic about how we set expectations with folks."
