ANATOMY OF A CLOUD START-UP – SLACK TECHNOLOGIES

Slack Technologies initiated their IPO in June of this year.  They’ve continued to do things in nontraditional ways.

At their debut on June 20, stock opened at $38.50, traded as high as $42. that day and has not reached that level since.  Recently the trading was around $28.  So, when Slack posted the second quarter results this week (the first reporting since the IPO), strong revenue growth was shown, deeper operating losses and a continued cash burn, along with a revenue growth forecast for the current quarter and fiscal year ending in January – all ahead of the analysts’ estimates. Unaccountably, the stock slid 14% at that news.  However, even so, that represented a valuation of about 22 times forward sales (ref WSJ).  This puts Slack in the upper tier of cloud software companies and above many others that are showing fast-growing performance.  Slack also carries a substantial premium and employs a “freemium” business model using a mixture of paying corporate users with free consumer use.  Gallagher, writing in the WSJ, states that Slack will still be challenged to justify its premium, “especially given deceleration that eventually happens for all hyper growth businesses.”  Slack contributed part of its revenue loss to a power outage that caused it to need to give credits to affected customers, but the company’s full-year forecast projects revenue growing 51% this year, compared with 82% last year.  As with all start-ups, things can be dicey in the early stages; it’s the late stages that actually tell the tale.  Thus, it’s entirely possible that things will settle out for the company.  However, I’d guess that Slack will continue to take a nontraditional approach to their business endeavors.

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