At what valuation/multiple would you buy Slack at?

[saltybit]

https://www.cnbc.com/2019/04/26/slack-releases-s-1-for-ipo.html
https://www.cnbc.com/2019/04/25/slack-valued-at-17-billion-on-secondary-market-ahead-of-public-debut.html

Some comparable enterprise Saas companies..
Okta https://finance.yahoo.com/quote/OKTA/key-statistics/
EV/revenue - ~28
yoy revenue growth - 49%

zendesk https://finance.yahoo.com/quote/ZEN/key-statistics/
EV/revenue ~15-16
yoy revenue growth - 41.3%

Slack's revenue was 400M and grew by 82% yoy.
They have ~850m in cash.


Shares have been trading in the secondary market for 17B, which would be an EV/revenue of ~40. (if I did the calculation right)

What would you buy it at?

[saltybit]

some notes from their S-1:
https://www.sec.gov/Archives/edgar/data/1764925/000162828019004786/slacks-1.htm

Financial statements show that Slack’s biggest expense by far is sales and marketing, which accounted for $233 million in fiscal 2019, equivalent to 58% of revenue. Slack has been spending heavily on advertising and “brand marketing.” Raising the profile of Slack’s brand name will be important when the company goes public, to ensure investors know what the company does.

• General and administrative costs doubled in the year to $112.7 million, which Slack attributed to expanded finance, accounting, legal and HR employees. That increase may reflect Slack’s preparation to become a public company.

• Slack’s net loss was roughly flat in the most recent year, at $138 million.

• The company’s paid customers use Slack on an average workday for more than 90 minutes.

• About 40% of its fiscal 2019 revenue came from just 575 paying customers, each of whom generated more than $100,000 in annual recurring revenue for Slack.

[cameronfen]

I use slack occasionally, I just don't get what the runway is for monitization.  Are the chatbots and whatever else is in the ecosystem or whatever you get for paying all that useful?  I think Microsoft teams has the large enterprise sown up as they are growing faster than slack in terms of users (I don't know about revenue but users is what matters) as its integrated with Office 365 and every enterprise has that.  Also Microsoft cloud is just more secure so effective TAM is much smaller than actual TAM when you take out the slice Microsoft has.  Its made even smaller by the fact that Slack's free offering.  I think net profit margins would be around 30-50% so somewhere around 10-20x revenue would be fair value.  But I have no precise estimate so I wouldn't even consider it if it was above 8x (mostly because I'm not confident about net margins number). 

[Jurgis]

I've heard there are people and orgs who swear by Slack. We have not used it and likely won't use it (even though some people want it), since we have started using Microsoft Teams.

Partially OT: I don't understand Microsoft plans regarding Skype-for-Business and Teams. They seem to be almost the same products, maybe SfB being a subset of Teams functionality. I guess they just have competing teams (pun intended) and can't kill one of these products. (It's also really funny that MS Teams has only subset of Skype emojis... with no rhyme or reason which ones they have ... like wth can't they just port all Skype emojis to Teams...)

[Spekulatius]

So revenue run rate in Q3 is  $168.7 M or roughly $676M/ year. I guess it would be interfering for me at < 10x  EV/EBITDA or ~$7B Market cap. Now WORK’s revenue is growing quickly so if the shares stagnate or fall and revenue continue to rise, it could get here pretty quickly one way or another.

I also wonder what the moat is. Communication within the company isn’t really a moat. A moat with SAAS begins when a product is going to be integrated in business processes (tie in with ERP etc). It would be really cool and powerful, if one could use Slack as a hub to do all sorts of things with an DRP system, but due to the diversity and complexity of these systems, that wouldn’t be easy to do. Just being a better replacement for email won’t cut it, imo.

I haven’t used Slack and my trailing edge company (in terms of IT) probably won’t use it either. We have got skype, but it’s doesn’t have the same sort of functionality. Slack seems more like Discord which is mostly used within gaming communities.

[gjangal]

It’s quite likely that this maybe a steep price to pay or cheap depending on future performance. Watching performance closely is warranted. If revenues 3x or 4x in five years and margins are around ~30%,  this will be a cheap price to pay, maybe around 20% pa return.

If revenues grow slower than that, stock price can be cut in half from here.

[perulv]

I am a software developer/architect working in a small company, and we use Slack. I would say that Slack adds value for us, both by being a better channel than email for many things, and by having some good features (integrations with other systems, so we get an alert in a designated "chatroom" when a production-system fails, guest-users from outside the org, the signup-process is pretty streamlined, etc.).

That said, I agree with the lack of moat. There is not much stopping us from switching to a different provider/solution. We would lose the chat-history, but that's not a big deal. We could probably set up the new system with users, channels, integrations etc in hours, or at least a day or two.

[landstander]

Regarding multiple Microsoft products, Skype for Business is reaching end of life July 2021 and being replaced by Teams. If that happens, I think it further limits Slack as Teams becomes the default choice for larger companies.

[Jurgis]

Regarding multiple Microsoft products, Skype for Business is reaching end of life July 2021 and being replaced by Teams. If that happens, I think it further limits Slack as Teams becomes the default choice for larger companies.

Yeah, we moved to Teams fully and removed Skype for Business. People are mostly happy with Teams. Or at least happier than they were with SfB.