Investors have their choice of so-called stay-at-home stocks these days, as many technology stocks have proved their mettle during the COVID-19 pandemic. Two companies that have been instrumental in keeping businesses going during lockdowns and social distancing have been Zoom Video Communications (ZM 1.04%) and Slack Technologies (WORK).
But while both companies are playing an integral part in many people's lives right now, some investors are wondering which one looks like a better buy over the long term. Let's take a look at what each company is doing right now and why Zoom is likely a better bet over the long haul.
How Zoom is doing
It almost goes without saying how much Zoom's video services have become intertwined with our lives this year. Sure, Zoom was becoming popular before the pandemic, but usage has exploded since then. Teachers use it for distance learning, families and friends use it to keep in touch, and Zoom calls have replaced business trips -- all in just a matter of months.
This reliance on Zoom's services helped the company increase its revenue by 355% in the second quarter of its 2021 fiscal year. The number of customers with more than 10 employees reached 370,200 in that period: a spike of 458% year over year.
The company is earning a lot more from large businesses as well. The number of customers that contributed more than $100,000 in trailing-12-month revenue jumped 112% from the year-ago quarter.
Zoom is committed to retaining its customers as well: even the non-paying ones. The company just added encryption to its video service for free accounts, something which used to be only included in its paid tiers.
It's easy to think that Zoom may not be worth investing in once the pandemic is in the rearview mirror. But that thinking may be a bit short-sighted. The company has proved that it can be a vital tool for everything from business calls to family communications, and it's going to be difficult for any rival to unseat Zoom from this spot anytime soon.
How Slack is doing
Like Zoom, Slack's collaborative communications platform has become an important tool that's allowed many businesses to continue functioning during the pandemic. But while Zoom has experienced explosive growth, Slack hasn't seen nearly the same results.
Slack's revenue increased just 49% in the second quarter of fiscal 2021, even though paying customers generating greater than $1 million in annual recurring revenue jumped 49% and the company added 8,000 net new paid customers.
Those aren't terrible quarterly results, to be sure. Yet they weren't as impressive as investors had hoped for, considering that Slack is a must-have service for many companies during the pandemic. Additionally, Slack's dollar net retention rate actually dropped during the quarter to 125%, down from 136% in the year-ago quarter.
Of course, one less-than-impressive quarter isn't enough to write off a company, but it shows that Slack doesn't appear to be capitalizing on its full potential during a time when its business should be growing like gangbusters.
Why Zoom is a better buy right now
Aside from Zoom's stronger recent growth rate relative to Slack, there's one very important reason why investors may want to choose Zoom stock over Slack: competition. While Zoom certainly has competitors, the company has been able to differentiate itself enough from them, grow its customer base, and increase the amount of money it makes from those customers all at the same time.
Meanwhile, Slack faces very stiff competition from Microsoft Teams, which provides very similar services to Slack and is bundled with Microsoft's other, very popular enterprise software. Fending off Microsoft Teams is always going to be a hurdle for Slack, and if it can't do it well enough when companies are in desperate need of communication tools, it's going to be even harder when life gets back to normal.