Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
As COVID-19 continues to change how many workers and students approach their daily labors, demand for some remote work friendly products is booming. As TechCrunch recently explored, some startups are seeing interest accelerate for their products, services and wares.
The trend has become sufficiently acute that it’s common now to see jokes on Twitter from people fervently hoping that Zoom doesn’t crash as many American universities quickly move to leverage the popular video chat service.
Zoom reported earnings earlier this month, beating investor expectations for the past quarter, and forecasting revenues ahead of investor guesses for the current quarter and its full fiscal year. The 2019 IPO also noted that it could see gross margin erosion as usage of its product free tier accelerated ahead of monetization. The remote work boom is changing Zoom’s short-term economics, and, investors hope, its long-term growth curve.
Slack, another recent public offering and remote work friendly tool, reported earnings yesterday. Instead of it going well, shares in the American chat app quickly fell. TechCrunch noted at the time that this was likely due, in part, to its further forecast appearing light. After the report dropped, Slack posted a temporary recovery, opening down a more modest 6% today after posting a 20% drop after its figures first dropped. However, since then its shares have slid and are down 19% as I write to you.
This morning we’ll examine the company’s notes from its earnings call, mixing in fresh usage notes from Monday.com — another popular remote friendly software service, albeit one that is still private — and take a peek at new data that could help us illuminate growth trends in Slack’s battle with Microsoft’s competing Teams product.
The picture that emerges is somewhat complex, with Slack’s usage rising, but the firm hesitant to forecast present demand as future revenue as the world changes. But we can explain why the company’s shares fell and staged a recovery, albeit a temporary one. Let’s go.
Where’s the boom?
The riddle of Slack’s last 24 hours of share price gyrations is how the company managed to fall 20% after reporting earnings that depressed investors, open this morning down a single-digit percentage, and then shed all its recovery in the first 30 minutes of regular trading.
To understand the conundrum, we need distill Slack’s earnings call transcript. There are two sections of the company’s earnings briefing that I’d like to highlight. The first had to do with usage growth (the pace at which Slack’s service is adopted) and monetization (the pace at which people convert to paying customers).
Here’s Slack CEO Stewart Butterfield from the call yesterday answering a question about demand, usage and remote work (transcript excerpts via Motley Fool, bolding via TechCrunch):
I think the headline is, there’s just a massive outpouring of interest on the customer side, and it’s really all over the place. So I mean, there’s existing customers who are accelerating some of their plans. A lot of this is changing. The world looked a little different 24 hours ago and it looked different 24 hours before that and 24 hours before that. So a lot of this is unfolding near real time. There’s a lot of energy inside the company. […]
It’s kind of an all of the above in terms of customer response. We’ve done proactive outreach to all of our large enterprise customers and we are getting a huge number of our inbound. We are seeing at the top of the funnel new team creation spikes pretty dramatically, and that’s very strongly correlated with the countries that are in the headlines.
That is all rather bullish. Slack has a good history of converting free users to paid accounts. However, the company is playing it safe. Here’s how Butterfield wrapped the call:
I think if I can reiterate a couple of things that came up over the course of the call. Probably the headlines and where we’ve seen the bulk of the questions around the impact of coronavirus and I think it’s mixed, a little too soon to tell. We’re trying to take a prudent approach when it comes to guidance, but we are in a state of just like all hands on deck in response to what we’re seeing from customers.
This is key. As TechCrunch reported yesterday, Slack’s recent performance bested expectations and its forecast met what investors had anticipated. However, it appears that the market had really anticipated more; but while Slack’s written report was conservative and therefore disappointing, its earnings call told investors that there could be more growth waiting in the wings — precisely what they had wanted to hear.
But that wasn’t enough to bring Slack all the way into positive territory; however, it was enough to massively blunt the company’s decline, at least at the start of trading.
Gains
Slack’s usage gains, in the context of a broader remote work boom, are being echoed by other players. As we promised up top, we have some notes from Monday.com, a quickly growing and remote friendly team productivity application. TechCrunch spoked with Monday.com CEO Roy Mann about what his company is seeing in the market today.
Recall that Monday.com is north of $120 million ARR, making it an at-scale company, if smaller than Slack. Mann told TechCrunch that the unicorn has seen a “big, big change in China and Korea,” with content creation and user interaction with posted material rising 60% in Korea and 200% in China, two countries that have been hit hard by COVID-19. TechCrunch confirmed the timeline for those metrics, which were measured from the end of January to March 10th.
Monday.com also told TechCrunch that “around communication,” it has seen “a 50% increase in Korea and 80% in China.” Unlike Slack, Monday.com doesn’t have a robust free tier, so rising usage could imply a quick ramp to new revenues. Given that the company is already growing quickly, any tailwind could be material.
As an aside, here we see the difference between being public and private. Slack went through the ringer between its earnings report and its earnings call. Monday.com, in contrast, gets to share partial data and look smart with no risk. There are more reasons than failing economics that are keeping some companies private.
Microsoft Teams
Some recent data indicates that while Slack is seeing boosted usage, its arch-rival Microsoft Teams could be skating forward even more quickly. As IVP investor Parsa Saljoughian tweeted:
That is not bullish for the standalone service. And it seems that, when all the results, forecasts, calls and time had passed, investors decided that Slack’s had let them down.
