Slack Technologies – Enterprise Growth Trajectory – 26 November 2019

1.

Can we start with an overview of Slack’s operating environment? What 2-3 trends or drivers should investors be monitoring particularly closely?

2.

How should we size the TAM that Slack is vying for? I have read estimates of USD 28bn-plus, using metrics such as office workers.

3.

You mentioned that Slack’s TAM is predominantly based around office workers. Do you think Slack will seek to move into more of a remote access management, LogMeIn-type business model, to allow the TAM to include frontline workers? Could you foresee that as a 5-10-year goal, or is that not particularly feasible?

4.

How do you think Slack’s TAM splits between SMB and enterprise entities? A previous Interview suggested the rule of thumb is a 50/50 split, but how do you think that applies to the workplace collaboration market?

5.

You mentioned you anticipate that USD 30bn TAM for workstream collaboration to reach almost 100% penetration within the next 10 years. What are the barriers preventing it becoming fully penetrated, particularly among SMBs?

6.

Can you outline the competitive landscape? It seems that it is skewing towards a Teams vs Slack duopoly. Why do you not foresee room for niche players such as a Facebook Workplace? What are Slack’s key differentiating factors that make it a market leader?

7.

How do Teams and Slack match up on features and functionality? How do Slack’s more and deeper integrations stack up vs Teams’ deeper integrations Office 365-wise? How would Slack differentiate itself in a sales pitch, and what are the key criteria shaping the customer decision-making process between them?

8.

There is seemingly minimal differentiation between Teams and Slack by feature and functionality, but Teams has much deeper integrations with the Office suite. I imagine those integrations are a valuable criterion for enterprise customers. Do you think bridging that gap is key to Slack’s enterprise penetration?

9.

Teams comes with the Office licence and is, to an extent, a free model which just has to be good-enough. Do you think Slack needs to further differentiate itself from a product perspective to stand out?

10.

Do you think Slack’s growth trajectory will be via greenfield opportunities or as a Teams replacement? How do you expect that to evolve, in that Teams increasingly comes up at sales pitches as Slack moves upmarket?

11.

Slack’s revenue growth has been 50%-plus YoY as of late. Do you think penetration in those SMB and mid- market cohorts has hit a saturation point, and it needs to pursue companies which may already have Teams to maintain revenue growth?

12.

You alluded to Teams being in the ear of the deciding personnel, in your own words. In past Interviews, we have had CIOs [chief information officers] and CTOs characterised in two groups. One that wants to be as close to one vendor as possible – in terms of simplifying or streamlining things – and a second that prioritises best-of-breed, which Slack seems to fit into. How significant is the first CIO/CTO group?

13.

Examining Slack’s enterprise strategy over the past few quarters, there has been 75% YoY growth for customers that contribute USD 100,000 or more on an annual basis. Do you foresee that enterprise momentum sustaining, even if it only potentially represents 30-40% of TAM? What are those growth drivers in the enterprise cohort over the next 2-3 years?

14.

Can you estimate an inflection point for this potential churn from Teams to Slack through customer dissatisfaction? Given the typical contract lengths, and how many renewals you anticipate customers would sit out.

15.

You would expect a sustained or slight slow to Slack’s enterprise growth for that 24-month period, and then some reacceleration?

16.

Slack has benefited from this viral adoption-type engagement model. Do you think that hinders the company in enterprise, given it seems sales will have to go to the CIO? Slack may resonate in software development and IT functions, but do you think it caters enough to other verticals such as HR, if the CIO is seeking a wall-to-wall offering to deploy?

17.

Could you foresee Slack having vertical-specific offerings, in which elements are packaged and deployed based on different functions? Or is getting the whole ecosystem on board not a meaningful headwind?

18.

Can you outline the relative strengths and weaknesses of Slack’s go-to-market and pricing strategies, especially relating to enterprise? What will it tweak to cater to what those enterprise customers are seeking?

19.

You mentioned that if Teams is successful in applying pricing pressure, we could potentially expect a TAM reduction for workplace collaboration. What are the puts and takes for how that plays out? Do you think it would be prudent for Slack to lower prices? Enterprise might give an upward expansion, but potentially not as much as we would expect, if it has to lower the price that it on-boards with.

20.

Expanding on the importance of Teams having a strong hold on this cohort, past Interviews have suggested Slack could expect 20% enterprise penetration. What are your predictions for its enterprise penetration?

21.

What pricing discount do you think Slack would have to take to secure an enterprise deal? Could it potentially be double-digit?

22.

How would Slack’s sales cycles differ for enterprise relative to SMB? Would this be multi-term, multi-year cycles for enterprise? Is there any way that Slack can drive that down?

23.

Slack’s management also touts the company’s strong net-dollar retention, 136% most recently for Q2 FY20. Would a heavy focus on those enterprise deals potentially erode that, if it is not concentrating enough on the existing base? What kind of decrease could we expect there?

24.

We discussed user engagement. Microsoft recently announced a 20 million DAU figure, 50%-plus growth for the past few months. What are your thoughts on its user base relative to Slack’s, and what user engagement metrics do you consider most critical for knowing their customer?

25.

Microsoft 365’s Corporate VP, Jared Spataro, said that Teams auto-opening when the PC boots up does not count towards the DAU. How do you evaluate Microsoft’s relative ability to bridge the engagement piece, relative to what Slack is doing?

26.

Microsoft is seemingly focusing less on the message piece. For Teams, it reported 27 million voice or video meetings and 220 million open, edit or download actions on files stored per month. Why do you think it released that, given the engagement seems fairly weak relative to Slack’s five billion actions per week, and 90 minutes of use per user per day?

27.

Slack goes in on a freemium model, in that the standard tier is free-to-use. Do you think that could be a concern, in that a large portion of the free user base does not ever get monetised? Will Slack potentially have to focus on improving free-to-paid conversion?

28.

How can we size the opportunity of the shared channels concept?

29.

Management commentary suggests shared channels can be a big free-to-paid conversion driver for Slack. Do you think that moves the needle? Are customers paying for the product simply for the shared channels? Or is it more likely that already-paid users will opt into shared channels?

30.

What is your outlook for the workspace collaboration landscape over the next few years? Are there any wildcards to keep our eyes out for, and how does all this play into a best- and worst-case scenario for Slack?

31.

Are there any assumptions around workplace collaboration or Slack specifically that you find the investor community frequently misunderstands?

32.

Can we conclude with your overall assessment of Slack and its prospects?