Deltec Think About This - Killing Me Microsoftly September 16, 2020 | Page 5

Think About This
INVESTMENT RESEARCH
SLACK NET DOLLAR RETENTION RATE
150%
145%
140%
135%
130%
125%
125%
120%
115%
110%
Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20
Source: Company Filings, Deltec
SLACK REVENUE GROWTH QoQ
20%
15%
10%
5%
Est. 2.8%
0
Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20
Source: Company Filings, Deltec
Slack reported on September 9th 2020. The market was hoping for a re-acceleration of growth, instead it
showed the opposite which sent the shares down as much as 18.5%. Firstly, quarter over quarter growth for
customers who generate revenue above 100k (a key driver of revenue growth) fell to just 2.3%. This is a
declining trend and way below the double-digit growth of 2018 and 2019.
Another troubling sign is that the net dollar retention rate had a material drop in the quarter, suggesting
that there is churn in the existing user base. Lastly, Slack guided for just 2.8% quarter over quarter revenue
growth for the third quarter, a dramatic drop from prior years.
This is not a reflection on the quality of Slack’s offering. We think that Teams is winning because it is free.
Companies are not only reducing their headcount but also their IT spend. Businesses now have much
tighter budgets and will find it difficult to justify paying for Slack when there is a free alternative that
already integrates seamlessly with its other Microsoft apps and software.
Slack’s CEO blamed IT spend for the soft outlook and avoided discussing Team’s. In fact, in early May Slack’s
CEO stated that Teams is not a competitor. Strange then, that in July 2020 he filed an antitrust complaint
against Microsoft with the European Commission. The wolf has the table laid.
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