The Slack S-1: An Analysis in Five Charts [SK]

Slack's initial public filing revealed some impressive customer data, but questions remain on its ability to withstand competitive onslaught from Microsoft's competing offerings.

On Friday, workplace messaging software business Slack filed to go public via a direct listing under the ticker SK. Here are 5 quick takeaways from its ~400-page S-1 filing.
In short, it's valuation has gotten pricier of late, but for good reason: the product is improving, driving accelerated customer spending, strong dollar retention, and shrinking operating losses.
How the product fares against competing offerings from Microsoft will be the major outstanding question for investors as the company debuts on public markets.
1.) Private market valuation has expanded rapidly ahead of direct listing.
Based on private market trades, Slack’s valuation has more than doubled over the last 3 quarters, with recent trades valuing the business at close to $17 billion, or an eye-popping 42x trailing sales.
2.) Sequential revenue growth has shown consistent strength over the past 1-2 years.
Over the past 6 quarters, revenue has grown consistently in the ballpark of 15-16% each quarter, with increasing strength in customer spending offsetting recent deceleration in customer growth.
3.) New customers are ramping up their spending faster than older ones.
Over the past 5 years, each successive vintage of customers has increased their spending faster than prior ones, an attractive dynamic that we believe demonstrates a long runway for market penetration and growth.
4.) Dollar retention metrics are at the high end of industry peers.
Slack has an attractive customer base that tends to increase its spending meaningfully every year, as evidenced by its strong net dollar retention rate figures. Over the past 2 years, they’ve averaged around ~150% for this key metric – firmly in the high end of most high-growth SaaS businesses we’ve seen at IPO.
5.) Profitability appears on the horizon as operating losses shrink.
While Slack is still operating at a loss, we don’t believe profitability will be as foundational a concern for Slack as it has been for other recent high-profile IPOs. Over the past 3 years, it’s exhibited strong fixed cost leverage on the R&D and marketing side – a dynamic that has allowed it to end last year at a negative ~40% operating margin, after having reported a negative ~140% margin just two years prior.
Apr. 30th, 2019
The statements, opinions and analyses presented herein generally are provided as general information. Opinions, estimates and probabilities expressed in Titan research constitute the judgment of the author as of the date indicated and are subject to change without notice. While all the information prepared in the foregoing articles is believed to be accurate, Titan Invest (“Titan”) makes no express guarantee as to the completeness or accuracy of, nor can it accept any responsibility for errors appearing in, the foregoing articles. Other events which were not taken into account may occur, and any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The information contained herein is not, and should not be construed as, an offer to sell or the solicitation of an offer to buy any securities. In addition, nothing contained herein is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. While Titan is a federally registered investment adviser, the information presented is not part of the personalized, proprietary algorithmic based investment advice provided by Titan to its advisory clients. Rather, the information presented constitutes educational and informational materials meant to better inform market participants, including, without limitation, current and potential advisory clients of Titan. Prior to making any investment decision, you are advised to consult with your broker, investment adviser, or other appropriate tax or financial professional to determine the suitability of any investment. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy discussed herein will be profitable or equal any historical performance level(s). Neither Titan, any of its affiliates, nor each of their respective officers, directors, members, agents, representatives, employees, or contractors (collectively, “Titan Parties”), shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided herein. You assume all risks of loss resulting, directly or indirectly, from the use of the information contained in the foregoing articles. By accepting receipt of the foregoing articles you acknowledge and agree to hold harmless the Titan Parties from any and all claims, actions, damages, losses, liabilities, costs and expenses of any kind whatsoever, including but not limited to any claims of negligence, arising out of, resulting from, by reason of, or in connection with the use of the information contained in the foregoing articles. Securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore no portion of the above shall constitute a waiver or limitation of any rights you may have under any federal or state securities laws.
Certain articles discuss historical performance of a particular issuer over a limited period of time. The historical performance discussed in such articles represents gross performance of the issuer over the limited period of time depicted, and is not indicative of any actual portfolio or investment returns of any account. Any such returns, even if an account was invested in the security discussed over the limited period of time depicted, would be reduced by fees and expenses paid by any such account. The foregoing articles contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results. Comparable companies, strategies, portfolios and indices may be included in the foregoing articles only as a context reflecting general market results during the depicted period or as of the specified date. The comparison of any company, strategy, portfolio or index to a single other company, strategy, portfolio or index may be inappropriate because the relevant assets, strategies and level of risk may vary materially from the comparable company, strategy, portfolio or index as a whole. Titan uses a proprietary algorithmic strategy in selecting recommendations to advisory clients. Issuers and/or securities discussed herein may be, and often are, held by clients of Titan in their investment portfolios. Any single security or issuer identified in herein will not represent all of the securities purchased, sold or recommended for advisory clients of Titan. Please see Titan’s website and Program Brochure for more details on security selection for advisory clients. Before investing, consider your investment objectives as certain investments are not suitable for all investors. Past performance is no guarantee of future results.
© Copyright 2018 Whisker Technologies, Inc. All rights reserved.