Slack beat expectations, cuts deal with Amazon

Yahoo Finance's Alexis Christoforous and Brian Sozzi speak to Slack CFO Allen Shim about its latest earnings report, how the COVID-19 pandemic has created 'a new category,'new customers including Verizon and Amazon and more.

Video Transcript

ALEXIS CHRISTOFOROUS: Now to some earnings. Slack Beats on the top and bottom lines in its latest earnings report, which was released after the closing bell yesterday. The workplace messaging platform grew revenue by 50% in the first quarter, not too shabby. But Wall Street doesn't seem too impressed, because the stock is down about 15% here in the premarket.

Joining us now is Slack's CFO, Allen Shim. Allen, good to see you, and congratulations on a really solid quarter here. Slack continues to benefit from this shift to working from home during the pandemic. But, you know, in typical Wall Street fashion, they started to compare your results with those of competitors like Zoom, where revenue shot up 169%. Revenue also shooting up at Microsoft Teams. Do you think that those comparisons to Slack are fair?

ALLEN SHIM: Well, good morning. Thank you for having me. You know, I think we are talking about something that is not apples to apples. That we had a phenomenal quarter, really a lot of tailwinds driving our business, seeing record number of paid customers, 12,000 in the quarter. 90,000 organizations, whether free or paid, using Slack in the quarter, which was more in the quarter than we had all last year.

So there's real momentum in our business. What we're seeing is this acceleration of the category. And it is a new category. It is different than the voice and video solutions that you mentioned. And people are understanding that with voice and video, when you lost the office, you had to replace the in-person meeting with this digital meeting right away.

But with Slack and something like Channels, you've now replaced not just the meeting, but the office itself. You now know where to go to find information in the channel, who to find there. And all that becomes really a knowledge based free organization going forward. So I think what's really an important distinction is the value that people will retain and grow and build upon after this all ends, and we go back to the office. And our customers will still be using Slack at that period of time.

BRIAN SOZZI: Allen, you talked at great length in the conference call last night about the situation with small businesses. They're under stress, and rightfully so, given the pandemic. We just had a blow-out jobs report this morning. And I think it shocked a lot of people on the Street.

Are you seeing any early signs of grassroots in those small business clients? I know they were under pressure in the quarter. But have you seen anything of late that would just lend credence to what we saw on this jobs report today?

ALLEN SHIM: Well, we're fortunate that we've always been focused on engagement and retention. And because people use the product before they pay for it, it leaves a much higher stickiness than you might see in other enterprise products. As a result, we've had a very low base of churn in some of the dynamics that you're describing there.

But I think what we noticed in the last few weeks, maybe that is analogous to what you're seeing in the greater economy, is a stabilization of that. And I think, overall, we are not out of the woods yet, I think, by any means. And we want to be very vigilant and monitor these trends going forward.

ALEXIS CHRISTOFOROUS: Allen, also on that earnings call, your CEO said that Amazon is now offering Slack to all its employees. And Slack is also going to adopt Amazon Web Services Chime video calling technology. Tell us what that's going to mean to Slack. And is there going to be a material boost to the bottom line there?

ALLEN SHIM: Well, it was a great quarter for enterprise again. You know, after many years of investment here, you're seeing that traction over the last few quarters. It's Amazon. It's also Verizon. It's also Man Group in financial services. It's also Harvard University.

So you're seeing our ability to support these best-in-class types of institutions even beyond businesses. And specifically, on Amazon, it is going to be rolled out enterprise-wide. And at AWS, we have a real common interest in supporting developers. A lot of AWS developers are building integrations with Slack, and vise versa. So I think there is really a win-win proposition that we saw with Amazon that wants to build upon going forward.

BRIAN SOZZI: Allen, just based on what you've seen from Microsoft Teams the past few months, do you think they've taken or made any anti-competitive activity or made any anti-competitive moves in the marketplace that would impact you guys but also a Zoom, RingCentral, you name it?

ALLEN SHIM: Well, it's hard for me to comment on that specifically. Competition is good for our business overall. It keeps us sharp, and it keeps us innovating. And we want to really continue to grow our category. This is something that I think is probably the biggest confusion with Microsoft is they're not-- Teams itself is not an apples to apples comparison.

But Microsoft is clearly a competitor with our company. We're trying to replace email. We're trying to displace a lot of these legacy tools and try to drive innovation in the way that we work. You know, I think overall we're going to continue to invest to build towards that future. You saw a lot of exciting developments with shared channels, specifically.

The ability to bring different organizations and connect them into a channel I think is extremely powerful. I saw the benefit of that myself, because we ran our convertible debt offering process in a multi-org shared channel. And so, imagine doing that remotely, and then doing that process end-to-end in 10 days. That's only possible because we have something like Slack. And that's where I feel like the competition really just doesn't compare in the same way.

BRIAN SOZZI: Allen, what's the biggest challenge remaining for Slack to reach profitability? You've had some impressive customers the past six months, parent company Horizon. You just added Amazon. What's the final piece of the puzzle?

ALLEN SHIM: Yeah, absolutely. Verizon, we're obviously happy to bring them onboard as a customer, you know, given the relationship here. And I think overall you're seeing us, this quarter, we made a lot of progress there. We are free cash flow positive for the first time in our company's history. We continue to make progress, driving more leverage and more efficiency even as we grow. And that's been a big part of our growth phase priorities.

Obviously, investing for growth, number one, because we see this huge opportunity, this huge market and category being formed and led by us. But at the same time, we're a SaaS business that we think we can become more profitable, more efficient. So, you know, you had some interesting benefits, because you didn't have probably as much TNE this quarter. But I think overall we were on a good track even before that to drive towards profitability.

ALEXIS CHRISTOFOROUS: All right. Slack CFO, Allen Shim, always good to see you. Thanks for being with us today.

ALLEN SHIM: Thanks for having me.