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No. of Recommendations: 14
ElonFeeNix: Q1 2021 grew sequentially by almost $20M when they set a record for new paid customers (see below). Q2 2021 did not keep up that pace.

WillO2028: I can’t argue with your reasoning; although, their customer adds did stay above average.

ElonFeeNix: they got a real shot in the arm in the February - April quarter with 12,000 new paid customers. Oddly enough, that quarter did not result in an equally impressive bump in paid customers with $100K in ARR.

WillO2028: Slack does have a somewhat slower expand period, relative to other companies discussed here, following the landing of new customers. I don’t have an explanation of the lack of adding enterprise customers at a greater clip, that you pointed out so well.



While Slack is a very useful product, management all but told us a couple quarters ago it was slow to take hold and the future might be a grind. Here's what I wrote when I sold in June. I still feel much the same way.


WORK – Oh well. I wrote last month I saw Slack’s earnings becoming a binary event. The stock would either grab the same premium as other names with recent tailwinds or likely end up relegated to grinding it out in SaaS’s second tier. Long story short, I believe WORK posted a mild disappointment despite what seemed to be an almost perfect environment for proving its worth to the broader business world. The headline numbers were within expectations, and I was initially excited by the Q2 guide. However, after digging deeper I thought the secondary metrics lagged and the call was lackluster. Even though management noted the “all at once shift to work from home concentrated multiple quarters of Slack adoption into a few weeks”, that uptick sure didn’t seem to stand out in the quarter’s results, the FY guide or the rest of management’s comments.

Paid and $100K+ customer growth were both OK but not nearly as impressive as many others in the thick of today’s digital transformation. Slack continues to battle the fact “it’s always taken some time for Slack usage to kind of grow up inside of an organization, for people to get the hang of it, to invite their peers and colleagues for it to spread.” That doesn’t sound like frictionless, viral adoption to me. The kicker was when the CFO stated, “The transition to work-from-home was obviously a major tailwind this quarter and we expect net new customer additions to moderate through the remainder of the year to quarterly levels closer to those observed in fiscal 2020.” He also noted uncertainty in the sales cycle and “less visibility into how IT spending will trend the remainder of the year.” So, in the end this was just a one-shot deal?!? That doesn’t strike me as a disruptive communication platform. Rather, it sounds like a product still fighting to prove it is mission critical rather than useful tool. That puts it closer to the SMAR’s and PLAN’s of the world than CRWD or DDOG. Frankly, that is not what I was looking for.

Despite what I viewed as a wide-open shot on goal, I feel Slack clanged one off the crossbar. Heading into earnings, I viewed this as a good risk/reward scenario. Coming out I feel Slack’s thesis is still a bit more hope than execution. When I get that vibe, experience suggests it is time to move on rather than attempt to rationalize my misjudgment. Therefore, I booked the small gains from my March purchase and put the funds toward a new position in Fastly and a tiny add to LVGO. That’s been an awesome move so far. In total fairness, this switch was just as much FSLY pounding on my portfolio door as any dislike for what WORK might become. WORK goes back to my watch list instead.

[Epilogue: WORK formally launched its Slack Connect program shortly after earnings (https://slack.com/resources/using-slack/slack-connect?utm_me...). YAY! This could greatly expand their use cases and by extension their addressable market. We also saw Salesforce say it was going to veer away from its Slack integration and produce its own solution (https://www.theregister.com/2020/06/25/salesforce_anywhere_c...). BOO! A customer deciding to move to its own solution is never good, at least in the short term (think TWLO and Uber). Slack clearly seems to be onto something. However, as management stated adoption continues to be a grind. Let’s see what kind of traction Connect can get the next couple of quarters.]
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