We've noticed a stabilization in the economy: Slack CFO

Yahoo Finance’s Brian Sozzi sat down with Slack CFO Allen Shim to break down how the company is faring amid the coronavirus crisis.

Video Transcript

- A strong jobs report and a rally on Wall Street. The Dow is up over 3 and 1/2%. The S&P 500 is up almost 3%. NASDAQ is up over 2%. But good news is actually bad news for Slack. Shares of Slack down more than 15% right now. And yet their earnings report yesterday, they beat what Wall Street was expecting.

We're going to bring Brian Sozzi in in just a second, but first we want to hear what Allen Shim, the CFO had to say about what small businesses are looking at as their future.

ALLEN SHIM: We've always been focused on engagement and retention. And because people use the product before they pay for it, it leads to a much higher stickiness than you might see in other enterprise products. And 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, and maybe that is analogous to what you're seeing in the greater economy, is a stabilization of that. And I think overall that we are-- we're not out of the woods yet, I think, by any means. And we want to be very vigilant and monitor these trends going forward.

- Brian Sozzi joins us now. Can you tell us more about how Slack, you know, explains their pace of growth is slowing down, but they're still growing. But they're getting hit pretty hard for that right now.

BRIAN SOZZI: Yeah, that's correct, Adam. And the market is fixated on a metric that Slack puts out called calculated billings. Now that growth rate slowed versus what we saw in the prior quarter. They also yanked the guidance they had for calculated billings for the full year.

Hopped into the earnings call last night. You've got a company that is, I think, a little concerned on the health of the small-- of their small business customers. And as a result, they have loosened up payment terms for some customers, offered some credits. So that's one of the questions we put to Slack CFO Allen Shim this morning. What is the health of those small businesses? Key to me, I think, that they have seen some improvement. Doesn't sound like gangbusters, but some form of improvement coming out of the first quarter.

- Sozzi, Dan here. The calculated billings change, does that mean that a lot or more people or companies or groups are using Slack, but for free and not using the full enterprise tools? They're not paying? And then I also just want to ask while we have you, what do you get an impression or what's the impression you get about the fear the company has about Microsoft Teams right now? Has that been overblown? We were just discussing the analyst note the other day on one of the shows suggesting that the competition from Microsoft has been overblown, but I don't agree with that.

BRIAN SOZZI: Well, there is, Dan, two parts there. One, on-- they gained by most-- by some math 80,000 new customers on a sequential basis. Now it's up to them to start upselling those customers. And I do think there was some disappointment on this street that while they've gained what they call a lot of top-of-the-funnel customers, you have to start training these people up. And I think they need more salespeople, and I think they need to get out on that so they can drive that path to profitability.

And to your point of Microsoft Teams, Teams is a real threat. Shim played that down in our interview, but you talk to some folks on the street, and there is concern that there's only so high Slack can grow because of that-- just that dark cloud that is Microsoft Teams.

- Brian, I do have a follow-up question for you. Is there any kind of talk at Slack, and did they address this, of integrating video conferencing into the platform? I've heard the CEO say they have it internally for themselves. Why not make that a part of their offering for everybody?

BRIAN SOZZI: They have integrated with other platforms. Top of mind for me is Dropbox. I just talked to Dropbox. So Slack, they are integrating. These work-from-home companies are integrating together. I think-- I wouldn't be surprised if you do see Slack come out with some form of video product at some point. But for right now, I think they're very much focused on messaging and integrating with players like a Zoom, like a Dropbox.