Enterprise collaboration platform Slack (WORK) reported fiscal third-quarter earnings results earlier this week, and investors aren't quite sure what to make of the figures. Shares initially sold off in extended trading before recovering the next day. Many of Slack's most important operating metrics continue to march in the right direction, and management remains dismissive of Microsoft (MSFT 0.11%) Teams.
Here's what investors need to know.
Image source: Slack.
Slack now has 50 million-dollar customers
Revenue in the third quarter jumped 60% to $168.7 million, with calculated billings increasing 47% to $186.1 million. Net dollar retention rate came in at 134%, showing that Slack continues to see success in upselling existing customers more services. Slack added 5,000 paid customers during the quarter, and the tech company now has 821 customers that generate over $100,000 in annual recurring revenue (ARR).
Data source: SEC filings. Chart by author. Fiscal quarters shown.
These large customers are very important to the top line. The company also disclosed that it now has 50 customers that generate over $1 million in ARR for the first time, a new metric. In a statement, CFO Allen Shim called that milestone an "indication that large enterprises are increasingly standardizing on Slack as their primary collaboration platform."
In September, Slack introduced shared channels, which allow employees from different organizations to collaborate in a single channel from their own Slack workspaces. CEO Stewart Butterfield called shared channels the "most exciting product release in collaboration since we first launched Slack." Over 26,000 paid customers now use shared channels.
That all translated into an adjusted operating loss of $18.1 million, which led to an adjusted net loss of $12.3 million, or $0.02 per share. Free cash flow burn narrowed to negative $19.1 million; Slack uses a capital-light model, renting out cloud computing capacity instead of building its own server infrastructure.
Echoing recent criticisms around Microsoft's misleading user metrics, Butterfield took some more jabs at the enterprise software juggernaut. Microsoft is forcing Skype for Business users to migrate to Teams, boosting daily active users in the process.
"Although Microsoft markets Teams as a Slack competitor, and there's no doubt this causes confusion in the marketplace, in practice, these are different tools, used for different purposes, and our customers achieve markedly different results," Butterfield said on the conference call with analysts. "Just look at the weak engagement numbers that Microsoft themselves reported about Teams and the much deeper level of engagement you see among Slack users."
In terms of guidance, Slack expects revenue in the fiscal fourth quarter to be in the range of $172 million to $174 million, which should translate into an adjusted net loss of $0.06 to $0.07 per share. For full-year fiscal 2020, sales should jump to $621 million to $623 million, resulting in an adjusted net loss of $0.31 to $0.32 per share.
