Please ensure Javascript is enabled for purposes of website accessibility

Slack Earnings: Hitting 50 Million-Dollar Customers

By Evan Niu, CFA - Dec 6, 2019 at 7:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The enterprise collaboration platform reported third-quarter earnings, with solid customer metrics driving growth.

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 2.76%) Teams.

Here's what investors need to know.

Slack app interface on Mac

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).

Chart showing the growth in the number of Slack's paid customers that spend more than $100,000 in 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.
WORK
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$273.24 (2.76%) $7.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.