Sentieo was an early adopter of Slack. As a global company with 170 employees across several offices and time zones, we immediately saw the value of Slack “channels,” or topic-centric communication venues that are a place for instant internal discussions, updates, file-sharing, and even new employee onboarding (see our current openings).
Naturally, we were very intrigued by the Slack S-1 filing (see here). Below are the Sentieo-powered annotations we made as we read through the document.
The company explains what it does in two areas: Slack is where “work happens,” but it also replaces work email.
We also noted the tried-and-true “freemium” business model; the company has both free and paid plans. Slack has over 600,000 customers, 88,000 of which pay for the software. The typical user spends nine hours connected to Slack and over 90 minutes being active on the platform:
We completely agree with the benefits they list below, because we’ve seen the results in our own organization: increased engagement, valuable integration, better communication, and a running archive.
We are not alone in our Slack fandom: 87% of surveyed users agreed with us.
As for market positioning, while Slack lists several factors that help the business, we think that the focus, early lead, network effects, and switching costs (in our words) are key.
Slack’s growth strategy seems like “Business 101” — more customers, more business from existing customers, and more integrations (which make the product stickier).
Just like us, Slack is investing heavily in AI/machine learning, search, and other advanced technologies to improve workflows.
Revenue and revenue growth are absolutely spectacular. Slack went from an already sizable base of $105 mm in FYE Jan 2017 to over $400 mm in FYE Jan 2019. While the revenue quadrupling in two years is impressive, we also see gross profit going up 4x, and losses at the EBIT level flatlined over this time period. This indicates that Slack is scaling very well (in contrast to other recent S-1 filers and IPOs where losses have been growing with revenues).
Slack’s operating metrics are also going in the correct direction: paid users growing, large paid users growing, and net dollar retention comfortably over 100% (meaning that Slack is growing its revenue from retained accounts).
Related to this, the company provides a great annual cohort graphic.
The quarterly metrics reveal absolutely no seasonality in revenues. It’s growth, growth, growth!
Slack does both custom and standard third-party integrations with other tools. This, in our view and experience, is critical to Slack’s “centrality” within a business.
Slack lists personnel as a Risk Factor:
Slack’s corporate governance disclosures show a structure similar to other recent tech IPOs: supervoting stock, staggered board, and others.
Analysts doing the work on the offering need to consider the disclosure that the offering would have been an equity award trigger event (page 90) and the subsequent events on page F-37. (Yes, we did read the whole filing).
Since the company is doing a direct listing (like Google did) vs. a traditional underwritten IPO, AND there has been a secondary private market in the shares for years, we appreciate that the company included pricing and volume data.
The company has over $600 mn in cash/bonds, and went as far as a Series H-1 in funding, raising almost $1.4 bn.
Current shareholders table:
One final interesting tidbit: due to Board affiliation, payment processor Square Inc. is considered a Related Party. Square is paying Slack $230,400 for the current year.
Searching Square’s 10-K Business Description section (for Sentieo users: in:10k:BSN employees), we see that Square has 3,349 employees but also uses contractors. To ball-park the number, this indicates a price of $69/employee/year (about 50% off from the $150/year/employee for the more expensive Plus plan listed on the Slack website currently).
If you are interested in learning how Sentieo can make you more productive, please get in touch with us.