Shares of the workplace chat app, Slack, fell as much as 16% last Wednesday. After the bell, its share price went down to $26. The stock plunge came after Slack reported its first earnings as a public company.
Slack debuted on the New York Stock Exchange (NYSE) last June. There were other major tech companies to go public this year like Zoom, Lyft, and Pinterest. However, Slack took a different route. It is only the second large tech firm to go through the direct listing route. This was the same route that Spotify took when it was listed in April 2018.
With direct listing, a company can go public without counting on underwriters. These are people who buy shares from the company or insiders and then sell them to the public. In the case of Slack, it skipped all that and its shares began trading on the NYSE instead.
The plunge is said to be Slack’s projection of its losses for the next quarter of $0.08 to $0.09 a share. The numbers are a bit higher than the $0.07 forecast by Wall Street.
Other causes seen to have affected the stocks are the company’s weak guidance and the concerns over its ability to compete with Microsoft’s chat product, Teams.
In July, Microsoft revealed that it has exceeded Slack based on regular usage after only two years on the market. Compared to Slack’s report of 10 million active users in the three months that ended on January 2019, Teams has more than 13 million active users.
According to Microsoft, Teams has 19 million active users weekly. As for Slack, it has not publicly disclosed the figure for quite some time now. Back in 2017, Slack had about 9 million active users weekly.
“We see an equal opportunity for both Slack and Microsoft Teams to grow as alternatives to traditional e-mail and argue a duopoly-like market structure could form around the two most popular messaging-centric in platforms at maturity,” wrote KeyBanc Capital Markets analysts led by Brent Bracelin in a note to clients last August 25.
While the market for Slack seems large, the company’s growth is seen as slower than that of Microsoft’s Teams.
Slack could also be facing new competition with Facebook’s revamp of Workplace. In April of this year, Facebook revealed that it was redesigning Workplace.
In its financial report for the fiscal quarter that ended on July 31, 2019, Slack reported that total revenue of $145 million. There was a 58% year-over-year increase.
The revenue for the quarter was affected by the $8.2 million credits it had to give customers as a way to make up for the service outages and interruptions that happened in the quarter. Back in July 2019, Slack was down for an hour which affected its business customers around the world.
Slack also had Calculated Billings amounting to $174.8 million. This was due to a 52% year-over-year increase. It also had a GAAP gross profit of $113.9 million or 78.5%. Its Non-GAAP gross profit was $126.3 million or 87.7%.
In Q2, Slack ended the quarter with over 100,000 paid customers. The number is up 37% year-over-year. It net dollar retention rate was 136%.
The number of Slack’s paid customers with annual recurring revenue of over $100,000 total to 720 which is up by 75% year-over-year.
With the release of its second-quarter highlights, Slack has also shared its financial outlook for third-quarter of the fiscal year 2020.
Slack is looking at a total revenue of $154 million to $156 million or about 46% to 48% year-over-year growth. It’s also expecting its Non-GAAP operating loss to be between $49 million to $47 million. It’s also forecasting a Non-GAAP net loss share of $0.09 to $0.08.
For the full fiscal year 2020, the tech company expects its total revenue to between $603 million to $610 million which represents year-over-year growth of 51% to 52%. It’s anticipating its Non-GAAP operating loss to be between $180 million to $176 million. This includes approximately $30 million of one-time direct listing related expenses.
Slack is also expecting its Calculated Billings to be around $740 million to $760 million. This represents year-over-year growth of 43% to 47%.