The first software products from Slack Technologies (NYSE:WORK) and Atlassian (NASDAQ:TEAM) were developed to make collaboration and project management easier while working on software projects. Since then, the tools have expanded to serve entire enterprises. Their corporate missions are similar, but their stock performances couldn't be more different.

Atlassian has provided multibagger returns for shareholders, while Slack is trading below the price it IPOed at in June 2019. But for investors looking at opening a new position today, the question is which of these growth stocks has the better outlook from here.

TEAM Chart

Stock prices starting at the IPO through May 22, 2020. TEAM data by YCharts

Two software-as-a-service operators side-by-side

Atlassian has been public for more than four years, whereas Slack hasn't completed its first year as a public company. Atlassian has more than twice the trailing 12-month revenue and market capitalization of its peer. It also has more cash, better operating cash flows, and is operating at a smaller loss. 

Metric

Slack

Atlassian

Mission

To make work life simpler, more pleasant and more productive.

To help unleash the potential of every team.

IPO date and price

June 20, 2019: $38.50

Dec. 10, 2015: $21

Market capitalization

$18 billion

$45 billion

TTM revenue

$630 million

$1.52 billion

MRQ revenue growth

49%

33%

TTM net income

($571 million)

($203 million)

Cash and cash equivalents

$769 million

$1.8 billion

TTM operating cash flow

($12 million)

$569 million

Stock price change since IPO

(18%)

770%


TTM = trailing-12-month. Data source: Yahoo Finance, company news releases, and Crunchbase. Table by author. 

Given the other results, it should be no surprise that Atlassian's stock has performed better. The only metric Slack comes out ahead on is revenue growth in the most recent quarter.

The case for Slack

Slack's messaging content is arranged in channels, which can be set up by function (like an accounting channel), a cross-functional group (big new customer channel), or even an interest group (home-brewing channel). This design allows for natural collaboration among team members, which is why 87% of users indicate that the software has "improved communication and collaboration inside their organization."

The platform has had tremendous success since it was launched in 2014. Today, Slack has 110,000 paying customers, over 2,000 app integrations, and over 12 million daily active users. Customers love the messaging platform and have been increasing their average spend yearly, which has kept the company's quarterly net dollar retention rate consistently at or above 132%.

COVID-19 has forced many companies to adopt work-from-home arrangements for its employees, which has led to a surge in new customers and platform usage for Slack. As organizations deal with the long term impacts of this pandemic, many could decide this collaboration software is a must-have for their employees' toolboxes.

Cartoon images of people working together doing physical construction of webpages on laptops and mobile phones.

Image source: Getty Images

The case for Atlassian

Atlassian has seven primary software offerings, but two -- Jira and Confluence -- account for two-thirds of its revenue. Jira is centered around team planning and project management, whereas Confluence is a tool for content creation and sharing among teams. That array of software offerings allows the company to cast a wide net, and it catches customers via an effective "land and expand" model. 

The company makes it easy for customers to download and test its software. Since the tools are team-based applications, once people start using the software, spreading the word about it within an organization becomes easy. Because all of the tools work seamlessly together, companies that start by trying on will find that adding more its an attractive productivity-boosting proposition. Additionally, its marketplace with over 4,000 apps helps customers customize the tools to cater to how the organization works best. This approach has been highly successful in driving growth.

In its most recent quarter, it added over 6,000 new customers bringing the total count to more than 170,000. Revenue growth has been strong and stable, even in the face of the coronavirus pandemic, hitting between 33% and 39% year over year in the last seven quarters. Healthy growth in subscription and maintenance revenue has driven impressive operational cash flows and added to its already substantial cash position.

So which is the better buy?

Both these software-as-a-service operators have strong growth histories, popular products, and are well-run, founder-led companies. As a result, both carry premium price-to-sales valuations; Slack's is 20, and Atlassian's is 30. Yet despite its higher valuation, Atlassian is the better buy today. It has a longer history in the market, more optionality, and has built an amazing cash-flow-positive business model. The messaging platform company is just getting started and still has a lot to prove and thus carries more risk for investors.

Don't get me wrong, Slack could be a long-term winner. I own both these stocks, and I added shares to each of my positions last month. But my Atlassian position is three times the size of my Slack position, and that's just where I want it.