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Subject:  Slack IPO - A First Look Date:  5/14/2019  3:00 PM
Author:  jomohundro Number:  55710 of 76775

Slack’s IPO is scheduled for June 20, 2019, and it appears to me to be right up the alley of this group’s interests. I thought I would take a look at it and post here. I’ve lurked in the shadows for a bit…so it’s time to try to give back.

Just for the record, I am not a Slack employee. I have never used the product. If anyone here has used it, I would be interested in hearing your experiences.

Most of the info here was taken from the MD&A portion of their S-1…let’s take a look.

What Slack Is:
(Management's words, not mine)
At its heart, Slack is an instant messaging and collaboration system on steroids. Slack is a new layer of the business technology stack that brings together people, applications, and data – a single place where people can effectively work together, access hundreds of thousands of critical applications and services, and find important information to do their best work.

Integration is what takes Slack from a normal online instant messaging and collaboration system to a solution that enables you to centralize all your notifications, from sales to tech support, social media and more, into one searchable place where your team can discuss and take action on each.

Ultimately, Slack is more than email replacement. It is a new layer of technology that brings together people, applications, and data. Just as an operating system coordinates the flow of information and resources of a computer in a centralized fashion, using Slack inside an organization creates a hub into which critical business information flows, is acted upon and transformed, and is then quickly routed to its desired destination. Slack streamlines our users’ workflows, increases the beneficial return on the time they spend communicating, and creates a powerful point of leverage for increased productivity.

By the Numbers:
Revenue (thousands)

Year	Apr	Jul	Oct	Jan	Total		Growth			
FY2018 42,719 51,320 58,046 68,459 220,544 120% 113% 118%
FY2019 80,919 92,018 105,648 121,967 400,552 118% 114% 115% 115%

Gross margin appears to hold quite steady in the 77% - 78% area.

Total operating expenses
Year	Apr	Jul	Oct	Jan	Total		Change			
FY2018 63,479 68,589 78,167 127,796 338,031 108% 114% 163%
FY2019 97,146 114,343 142,862 149,108 503,459 76% 118% 125% 104%

R&D appears to be quite variable, and accounts for the large jump in January 2018 operating expenses.

Free Cash Flow
Year	     Apr Jul	Oct	Jan
FY2018 (10,977) 5,237 (1,388) (50,533)
FY2019 (14,969) (7,722) (43,467)(31,081)
This appears to be quite variable, with no discernable progress as yet toward a consistently positive number.

Customer Base
	                    2017	2018	2019
Paid Customers 37,000 59,000 88,000
Paid Customers >$100,000 135 298 575
Net Dollar Retention Rate 171% 152% 143%

The number of large customers appears insignificant, but those 575 customers in 2019 would have contributed at least 26% of total revenue ($57.5 million / $220 million total FY19 revenue)! It’s nice to see their large customer numbers growing at the rate they appear to be.

Collaboration tools seem to be a popular thing these days, and there are no shortage of competitors in this area. Microsoft probably is the leading competitor with their Teams product. The question might be how well other products "play well" with the information sources you need to integrate. I'm not sure if Slack has any sort of moat...maybe someone else can answer this?


I don't buy IPOs, so I'm not ready to make a conclusion. I'll be waiting six months or so before I make any sort of buy decision. Their customer growth appears to be impressive, though, especially the large customer sector. This may be one to watch as time progresses.
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