What is Slack? Behind the Company That’s Kind of IPO-ing

Slack is taking company communications by
storm, but a lot of people still don’t really understand what it is or why investors
are so interested in the business. In this video, we break down Slack and explain
why some think it’s the future of enterprise software. Slack’s namesake platform is
a cloud-based collaboration tool. Most people would describe it as a messaging
service, but it does so much more. With Slack, users can share files, create
project-based channels, and easily communicate with teammates around the globe. Instead of the siloed approach that e-mail
offers, Slack allows new teammates to access information that was
added before they joined on. Slack’s name really says it all —
it’s an acronym and stands for Searchable Log of All Conversation and Knowledge.
The software was born out of frustration. The staff at the company that would eventually
become Slack couldn’t find an enterprise communication tool that fit the needs of their business,
so they decided to build their own. Today, the service has
been wildly successful. Slack is using the classic software-as-a-service
approach of a land and expand with its freemium model. It’s free with limited
functionality for small organizations. As the companies grow and their needs grow,
too, they can move to paid tiers ranging from $6.67 cents to $15 per month per user. Right now, over 600,000 organizations use
Slack, including 88,000 paying customers. The average user spends 90 minutes per day
on Slack, and the service is used to send one billion messages a week. All those metrics points the fact that users
like Slack, and the more they use the service, the stickier or harder to leave it becomes. All of that employee communication turns Slack
into a knowledge repository for a business, which means companies can’t switch to a
competitor without losing the accumulated, easily accessible knowledge. Slack has been able to turn all of this into the
beginnings of a solid software-as-a-service business. Slack collected $400 million in revenue in
fiscal 2019, up 82% year over year, and management thinks they’re just getting started. The company is looking to take a sizable bite
out of the market for workplace communication and collaboration software, an industry they
estimate could be worth $28 billion in 2020. Slack’s fast growth and sizable addressable
market are two big reasons why investors have been eyeing the company. Like a lot of early tech companies,
Slack is losing money right now. But the hope is that at a larger scale,
the business can ratchet down its sales and marketing spend and get into the black. Looking at
the financials, the story seems to make sense. Software is generally high-margin
and Slack is no exception. The company posted 87% gross margins in the
last fiscal year, a sign that down the road, the business could
print cash for investors. Of course, all this potential also has market
expectations and Slack’s valuation high. The business will be going up against some
big names in enterprise software segment, namely Microsoft. So far, the company has thrived by creating
its own category of communication. But as it gets bigger,
the competitive heat might turn up. Now that shares are publicly traded via the
company’s direct listing, we’ll get a lens into exactly how that fight plays out.
Thanks for watching this video! If you have a company you’d like to see us
break down, mention it in the comments section below. Be sure to like the video and subscribe to
get more videos like this from The Motley Fool.

16 Replies to “What is Slack? Behind the Company That’s Kind of IPO-ing”

  1. i was looking for a video or podcast here and at your website about this topic i knew you woul do it hehe thank uu! you are late 2 minutes!!! xD love from portugal!

  2. Thanks for such an informative detailed video! I’m definitely not an IPO fan but they’re exciting to watch and think of the wild possibilities, especially with Beyond Meat!

  3. Hey TMF…how does Slack stand up to Microsoft Teams? I understand Teams is bundled with MS Office 365 plans.

  4. Foolish (small "f") projection: opens tomorrow above 35, trades above 40 and closes slightly below 40. And more foolishness…later this year Slack merges with ZM!

  5. Woohoooo. like always , great job in explaining Slack. My wife works in finance and wanted to know about it, so I showed this video to her.

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