One thing to note about the retention rate is that Slack officially launched in 2014, and has a shorter history than other companies on this list with many having launched 10 years prior to IPO compared with Slack’s five years. This is due to Slack’s sticky traction and low churn with the current customer base. Slack published a net retention rate of 143%, which is very good and outperforms most cloud software IPOs that provided this number in the past. If the number is below 100%, then downgrades and churn exceed growth. If the net dollar retention rate is above 100%, then the growth from the existing customer base offsets the losses. The formula for the net dollar retention rate is: Beginning of period revenue + upgrades – downgrades + churn = y with y/beginning of period revenue. This is helpful in predicting growth for subscription-based companies. Slack provided the net dollar retention rate in the S-1 filing, which depicts what percent of revenue from current customers is retained from the prior year, after accounting for upgrades, downgrades and churn. More quarterly earnings are needed to ultimately decide which direction this will go, and if the larger accounts will pay off as a primary focus for growth. That could be because of internal efforts to raise revenue and focus on enterprise-level customers, which is a common strategy leading up to public offerings. In other words, there is a divergence as overall paid users are declining, while customer accounts worth over $100,000 are growing. On June 3, Slack released an updated prospectus that showed growth in customers worth over $100,000 in contracts, yet revealed a decline across paid user growth from 9,000 in the year-earlier quarter to 7,000 in the current quarter. This year’s estimated adjusted loss is estimated to be 41 cents to 44 cents a share. The company is now forecasting 47%-50% growth in the current fiscal year with revenue between $590 million and $600 million, compared with $400 million in fiscal 2019. The questions that remain: timing and valuation for entry. However, due to Slack’s product strength, my prediction is the stock will have a turnaround as user loyalty will overcome the financial turbulence. Compare that with the daily time spent on Facebook FB, +2.60% 58 minutes, Instagram, 53 minutes, YouTube, 40 minutes, Pinterest, 14 minutes, and messaging app WhatsApp, 28 minutes.Īs I covered before the DPO, both sides of the debate have valid points when evaluating Slack’s future stock performance. Yet, there is impressive traction, with the average user keeping the app open for nine hours on her computer and engaging with it for 90 minutes a day. The slower growth, which was revealed in an updated prospectus two weeks before going public, was unlikely to win over many people regardless of how much traction the product has with current users. For instance, guidance for the current fiscal year is at 47% to 50% revenue growth year-over-year, down from 82% in the prior year. Slack’s product - an instant-messaging and collaboration system - has massive potential with a 143% net customer retention rate, yet the financials undermine the company’s growth trajectory. 4, here’s insight into its revenue, valuation and competitors. So what went wrong? And, more importantly for growth investors, will things go right for San Francisco-based Slack soon?īefore the company releases second-quarter earnings Sept. The losses are at 36% from its intraday high, and that occurred when many cloud-software initial public offerings (IPOs) have enjoyed triple-digit returns since going public. The shares WORK, +8.03% opened at $38.50 on June 20, rose to $42 intraday, and have now sunk to a record-low of $26.25 in after-market hours leading into its first earnings report as a public company. Slack Technologies is the fastest-growing software-as-a-service (SaaS) company of all time and a Silicon Valley favorite, yet the direct public offering (DPO) clearly did not go well for public investors.
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