For companies like Slack (WORK) whose businesses are centered around an app, the number of users that have the app installed and that regularly use it are some of the key ways that success is measured.
Slack is facing significant competition from Microsoft (MSFT 0.45%) and its Teams app which provides similar functionality, and the ensuing battle over users could be intense. In a broader sense, there are other apps out there like Facebook's Workplace, which is still in its early stages but could also vie for market share down the road. The more the successful Slack is, the more that larger tech companies may focus on workplace collaboration apps and services.
Microsoft Teams hits 20 million active users
As of November, Microsoft says Teams reached 20 million daily active users (DAUs). That's up more than 50% from the 13 million DAUs the company said it had back in July. Microsoft already has more users than Slack, which reported to have 12 million DAUs in September, a 37% improvement from the prior year.
However, those numbers can be misleading as Slack believes Microsoft's figures are inflated with many users only using Teams occasionally. In contrast, Slack says that its paid users spend nine hours each workday with the app connected, and 90 minutes where users are actively using the app.
Slack feels it has an advantage over Microsoft in its versatility, with the company noting on its recent earnings call that many customers create their own apps. And with over 1,800 apps already available in its app directory, there are many integration options for users right out of the gate.
Why Slack is at a disadvantage
Customizing apps for Slack and creating company-specific solutions is a key differentiator for the company that it believes will be able to set it apart from Teams and other apps out there for businesses. However, the benefit that Microsoft has is that Teams is bundled with Office 365 at little to no extra cost, making it essentially free for many of its existing users.
And for companies that already use Microsoft Office, it may not make a lot of sense for a business to also add another app like Slack -- which may not provide any new functionality -- especially for an organization that doesn't have dedicated developers available to build custom solutions.
Without the luxury of a large user base to tap into, Slack is going to have to work that much harder in order to be able to continue growing its user base. And while the results have been strong thus far, over the long term it may not be easy to keep that growth going, especially with Microsoft and now Facebook as well, starting to focus more on workplace collaboration.
Is Slack too risky to invest in?
Since it began trading on the NYSE, Slack has seen its share price fall by more than 40%. And with Microsoft Teams proving to be a viable alternative, the company has its work cut out for itself. With more resources and significantly more users, the prospect of competing against the tech giant could make it difficult for Slack to continue its impressive growth.
Slack is currently trading at more than 22 times sales and 15 times its book value. And although the company is working on reaching cash flow breakeven, it could be a while before its gets there. For now, investors may want to steer clear of the stock until it can demonstrate how it will be able to grow over the long term given the intense competition it's facing today. Slack could carve out a strong niche for itself, but that may not be enough to make it a good growth stock to invest in today.