01 Oct 2020
Posted in Business Fundamentals
Slack’s sentiments tumble in Q2 2020 despite growth in metrics
Slack Technologies (Slack) witnessed sentiments decline by 12% in Q2 2020 (quarter ended in July 2020) compared to Q1 2020. The dip was primarily driven by a weaker-than-expected financial performance, says GlobalData, a leading data and analytics company.
Sentiment scores for Slack hit a 12-month low after its latest earnings release. In Q2 2020, the company’s revenue was US$215.9m, up by 49% year-on-year (YoY). It also attracted 8,000 new paid customers during the quarter, indicating a growth of 30% YoY. The company’s paid service, Slack Connect, drove its robust paid customer growth. Notwithstanding these impressive figures, Slack’s sentiments have taken a hit due its negative outlook and the stronger performance of its competitors.
Slack experienced billings growth of 25% in Q2 2020 (compared to Q2 2019) versus an increase of 52% in Q2 2019 (compared to Q2 2018). The company’s YoY calculated billings growth rate has been steadily declining over the last five quarters, causing revenue growth to plateau. In contrast, Zoom reported a 355% increase in revenue over the same period, which drove its sentiments.
Slack has provided concessions to customers to encourage them to keep using its product, but it could potentially mean that the company could miss out on its Q3 earnings target.
Rinaldo Pereira, Senior Analyst at GlobalData, says: “The COVID-19 pandemic has sent companies scurrying to ensure customer retention. Slack has not been generating revenue at a comparable rate to its competitors, jeopardizing its prospects.”
According to Slack, its Q3 2020 revenues are likely to be between US$222m to US$225m, depicting a 32% increase at the midpoint of its guidance, while forecasting earnings per share (EPS) losses.
Pereira adds: “This is a concern for shareholders as there are clear indications that Slack has not been able to capitalize on the video conferencing boom. Adding to the woes of a slowing growth rate is an antitrust complaint filed by Slack on Microsoft over integrating Teams software with the widely used Office apps. This action may lead to Microsoft’s further retaliation, which could affect Slack’s earnings in the future.
“For Slack to ride the waves of the video conferencing boom, the company must continue to increase its paid userbase, as well as strike deals with other organizations.”