You might be one of the 12 million users from 105,000 organizations who log into Slack Technologies' (WORK +0.00%) platform every day. If you are, you spend at least nine hours connected to the software with 90 minutes of that time interacting. You might be familiar with its acronym: Searchable Log of All Communication and Knowledge, or be part of the 87% of users who report that Slack has improved communication and collaboration in your organization. But do you know the company behind the popular team collaboration software?
Here are five things you might not have known that could get you more interested in following this young software-as-a-service company.
1. It was born out of failure
It was late 2012 when Stewart Butterfield, founder of the online gaming company Tiny Speck, realized its only game was destined to be a commercial failure. Rather than spend its remaining venture capital to put the game on life support, he decided to close down the company and lay off most of its employees. Butterfield convinced backers to let him keep the cash for a small team of eight to work on commercializing the internal tool it had created for team collaboration. Less than 12 months later, Slack was released to the world.
But the platform has grown since then, and it's not just for internal use anymore.
Team collaboration is easier with Slack. Image source: Getty Images.
2. It's venturing outside company walls
One of the recent developments for the platform is called shared channels. This allows two different Slack customers to connect with the tool. Whether it's a key vendor, important customer, or external consultant, the same email-busting benefits of the core application are now available for external communication. Shared channels are wildly popular and within the first few months, 26,000 paying customers started using them.
For large customers, it seems to be a must-have as 80% of the $100,000-plus customers have implemented them. This is a good thing as large companies are soon to be a majority of its revenue.
3. Big customers are big business for Slack
The company added 101 large customers (paying over $100,000 annually) in the most recent quarter, bringing the total to 821. This customer segment has doubled in the last five quarters and now represents 47% of total revenue.
A key reason for this growth could be the ability to reduce the complexity for employees of these organizations. The typical enterprise now uses more than 1,000 cloud services. There are over 550,000 customizations in Slack that can link to many of these cloud applications and automate frequently used features such as purchase order approval, software bug assignment, or retrieving customer information. This not only makes daily work more productive, but it also makes the product more critical for the enterprise.
In order to continue to make inroads with companies large and small, it needs to fuel its growth with investment.
4. It is spending more than it makes (a lot more)
Since 2017, it has spent over $1.5 billion on operating expenses, which are the sum of the costs for three company organizations: research and development, sales and marketing, and general and administrative.
|
Metric |
FY2017 |
FY2018 |
FY2019 |
Trailing-9-Months |
Total |
|---|---|---|---|---|---|
|
Revenue |
$105 million |
$221 million |
$401 million |
$449 million |
$1,176 million |
|
Gross profit |
$90 million |
$194 million |
$349 million |
$376 million |
$928 million |
|
Total operating expenses |
$238 million |
$338 million |
$503 million |
$873 million |
$1,502 million |
|
Operating expenses as % of revenue |
227% |
153% |
125% |
194% |
128% |
Trailing-9-month period ends Oct. 31, 2019. Data from SEC filings. Calculations and table by author.
When operating expenses are higher than gross profits, it means that it is incurring operational losses. When costs exceed revenues for an extended period of time, as Slack has, it's going all-in on investing for growth. Research and development total just over 50% of these costs, so the majority of this investment is focused on improving the platform. CFO Allen Shim promised the financials would gain more leverage as the business scales, which means the percentage of operating costs should go down over time, but he also stated that it won't stop investing in growth.
Surprisingly, Slack's cash position is still healthy. As of its last earnings report, it had $774 million in cash and marketable securities, but this is certainly an area to watch if you are interested in this company.
The last thing you may not have known is that it has created a great place to work for its employees.
5. People love working there
Slack scores an impressive 4.7 out of 5 stars on Glassdoor, with 92% of reviews recommending the company as a place to work to a friend and 97% approving of the CEO. It's no wonder that it made Glassdoor's 2020 best places to work list. With a mission to "make working life simpler, more pleasant and more productive -- for everyone," it's good to see that employees think that it's living up to its word. Happy employees tend to be more productive, and that's good for investors too.
Wrapping up
Whether you are a shareholder, a user, or an onlooker to the Slack story, it will be interesting to watch as this underdog takes on Microsoft's Teams software that is bundled for free with Office 365. Slack is betting that its singular focus on team collaboration, sticky platform features, investments in growth, and engaged team will be the key to its success. It could also be a winning formula for investors.
