Slack’s hazy future 🔮
Bull case vs. Bear case
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The first few The Daily Wit’s will get us up to speed on different tech stocks.
Today we’re briefing about Slack - the chat communication tool for companies.
Do you ever do research and feel something is off?
That happened to me when I researched Slack and its stock price yesterday. I use Slack and think it’s a godsend. It makes chatting remotely with co-workers quick, seamless, and organized.
With all this, I thought Slack’s stock price would rocket into this new socially distanced world.
Yet while peers like Zoom are zooming, Slack stock is hackin’ along.
In short, the market is bearish about Slack.
The bear case
Slack went against the grain. Since launching in 2014, Slack has sold software directly to users. This was great for signing up small business customers.
Unfortunately, this approach doesn’t bring domination. In the enterprise software industry, the big money is in selling to larger, more bureaucratic companies.
Microsoft is Slack’s #1 competition. These customers are Microsoft’s bread and butter. Build a sales army, win over gatekeepers, and force products onto employees.
Bears are spooked about Microsoft’s Slack competitor, Teams. The argument goes like this:
Big companies already have relationships with Microsoft
Microsoft is going all out to beat Slack
Slack’s losses keep widening
To start, Microsoft has a monopoly (87.5% share) on the office software suite market. Even worse for Slack, Microsoft offers Teams for free.
Right out of the gate, Microsoft is trying to cut Slack to its knees. They are giving their customers no reason to try Slack.
You may have seen this before. As Ben Thompson highlights,
“Not only did Microsoft build Teams in 18 months, they launched it on Windows, Mac, iOS, Android, and the web on day one. They are pursuing the same strategy as Instagram Stories — cutting off Slack’s future market...”
Bears believe it’s an uphill battle for Slack to sell into big companies.
Finally, bears are not inspired by Slack’s shaky financials. Namely, the widening losses.
One Analyst put it, “Slack isn't profitable, and its GAAP net loss widened from $140.7 million to $571.1 million in fiscal 2020. In the first quarter of 2021, its net loss widened again from $33.3 million to $75.2 million.”
The bull case
Slack bulls take the long view.
Their reasoning follows three steps. Slack:
Has the leadership to execute
Is winning big enterprise contracts
Is going after a bigger prize in email, not just chat
Leadership
Whenever I talk to current or former Slack employees, they unanimously believe in the CEO, Stewart Butterfield. His glassdoor rating (96%) and praise from Chamath reflect that (note: Chamath owns 10% of Slack).
“It was obvious from day one that Stewart Butterfield is an iconic CEO and that Slack is going to be one of the most important tech companies in the world.” - Chamath
Butterfield is no stranger to competition. He navigated Slack to an underdog victory in an earlier battle against Atlassian. As Ben Thompson wrote in 2018,
“Make no mistake, Atlassian lost this battle, and lost it handily: the company had a head start, a massive customer base it could market to, and was clearly willing to invest to win the space, but in the end Slack was better...”
Wins
A month ago, Slack got a massive win. They signed a partnership with Amazon to use Slack. Now why does this matter?
It makes Slack a credible option for these target large businesses. Enterprises care about security. Amazon is known for it, Department of Defense contracts and all.
Big picture
Finally, bulls believe Slack can be much bigger than just chat. It has a real chance of replacing business email.
Slack introduced ‘Slack Connect’ last month. The feature allows businesses to communicate with other businesses through chat. Before, you had to email.
Now, why is this big? If chat becomes the default way of communication between businesses - all business people will want to, and need to, get on Slack. It’s just like why we make a facebook account or an email address. Everyone has one and you need one to communicate.
Why is this exciting? If Slack chat becomes the main way of talking, it could dent Slack’s fiercest rival, Microsoft. Specifically, the email client, Microsoft Outlook.
Enterprise clients love Microsoft Office because it provides the total package. If Slack wins and Office can no longer offer everything, the bundle stops being valuable. That makes Slack is instantly more attractive to enterprises and puts billions of Microsoft’s revenue at risk. It’ll give Slack the shot to be a $100+ billion company.
Funny enough, Chamath called this in 2015.
Thanks for joining me.
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