Allen Shim, Slack CFO, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss the company’s recent quarterly report, the latest on Slack Connect, its growing customer base and much more.
ALEXIS CHRISTOFOROUS: Shares of Slack on the move this morning after the communication platform posted a second quarter earnings that missed expectations earlier in the week, which sent the stock sharply lower initially. Let’s break it all down now with Slack CFO Allen Shim. Allen, good to see you and have you on the show again.
So this latest quarter, revenue beat big time. You added 8,000 net new paying customers. But your billing growth rate slowed down during the quarter. What do things look like right now?
ALLEN SHIM: Well, great to be back here and great to see all of you. Hopefully everyone’s staying safe. For us, Q2 was a good quarter, but in a tough environment.
We continue to add, as you mentioned, from a long-term perspective the key factor, which is paid customers. We added 20,000 the last six months, which was basically as many as we added last year. So that’s real acceleration on that trend. It’s really good for our long-term outlook.
I think what’s happening in the short term is that we saw some headwinds in the business, particularly the install base, given the volatility in the macro environment. And we flagged this to investors last quarter, which is why we removed our billings guidance.
And then lastly, I’d really point out we’re seeing good momentum in particular on both enterprise wins, but really, more importantly, our innovation in Slack Connect. It’s really become a key differentiator for us. And we’re seeing that accelerate over the last few quarters here.
BRIAN SOZZI: Allen, what needs to happen for the billings growth to re-accelerate? And does that happen this year?
ALLEN SHIM: So we’re a land-and-expand model. We start small with organizations. And even our largest wins typically start out on a self-service basis, maybe with a few dozen people. And then we really grow from there, particularly with the enterprises through our sales organization. And so I think what you’re seeing is we’re adding really the fuel for the engine over time.
In this environment, I would expect that expansion dynamic to take a little bit more time. But we’re very encouraged over the medium to long term that by adding more or more of these customers, we’re going to see more of that expansion show up over time. It’s been actually quite consistent, with kind of Q2 being the exception to the pattern we’ve been seeing.
ALEXIS CHRISTOFOROUS: Allen, in your latest quarterly filing, you actually included some new language we haven’t seen before. You warned investors that Microsoft could retaliate against Slack over the company’s antitrust complaint against the tech giant. Why was it important to include that in the regulatory filing?
ALLEN SHIM: Well, there’s some– lawyers do what lawyers do. I think the key thing that we’re focused on is delivering value for customers. And I think when I look at our prospects going forward, competition is a normal part of running our business. It’s been I think year four now of competing with Microsoft in particular.
But when I look at our customer wins, whether it’s HSBC, Northwestern Mutual, or innovators like Shopify and Peloton, which had a great quarter yesterday, they’re building on Slack. They’re seeing Slack as the unique offering for them to really scale their organizations over time. And we’re in the midst of a really structural shift in how people work. That demand is going to be persistent over a longer period of time.
And I think people are looking for new solutions– Slack Connect is a great example of that. They want to find innovation in the space to really accelerate the way that they’re working, versus getting more of a kind of voice and video conferencing unified communications tools.
BRIAN SOZZI: Allen, do you think Microsoft’s tactics are inhibiting your growth in any way?
ALLEN SHIM: I think competition is healthy at a kind of high level. I think if there was no Microsoft Teams, we would definitely be growing faster. But I think if you were to say four years ago that four years after Teams was introduced we would have 87 million-dollar customers, I think most people would find that pretty hard to believe. But that is the case.
And we continue to add progress– make progress there on all different sizes of organizations. But even in the last six months alone, 17 of those million customer– million-dollar customers were added. So I think we’re demonstrating that we continue to hold our own, that according to when we look at our data, the close rates and the win rates remain stable on a year-over-year basis. So we’re continuing to really differentiate.
And one just kind of quick gut check I like to suggest to folks is just read the different press releases that we’re producing. We’re clearly looking to a different path going forward in how work will be done, really focused on channel-based messaging and how we can leverage our platform and integrate all the tools that you’re using, versus what you’re seeing from Teams is really a focus on voice and video, which is clearly important right now, but it’s a very different vision. And customers are appreciating the difference.
BRIAN SOZZI: Allen, before we let you go, Slack Connect– how many companies are using that? And what are you doing to get more companies onboard?
ALLEN SHIM: So we talk about endpoints now. So we have 52– we have 52– 51,000, 52,000 organizations using it now. But really, we’re talking about endpoints, because the idea that you can now connect with people in multiple forms– so you might have two organizations first connect on a sales offering, but they might also connect on a different type of collaboration project.
And so you’re seeing the density of the network really start to increase and accelerate over these last three quarters. And we think that’s going to be a really powerful engine, not just for existing customers to spread Slack within their organizations, but it’s been a really powerful new customer acquisition tool. And so I think that’s going to really give us a lot of confidence in terms of our ability to drive that growth going forward from here.
ALEXIS CHRISTOFOROUS: Can you give us an idea of what kind of growth you’re looking at from Slack Connect? And for those who don’t know, this is your new email-like product. It seems like Slack’s really banking on this for revenue growth.
ALLEN SHIM: So we saw a 200% increase, year-over-year increase in end points. And that’s up from 140% just six months ago. So there’s a real acceleration in terms of how quickly this is spreading. This is very akin to the virality that we’re known for, this organic adoption where people are spreading it and sharing it with one another.
And I mentioned its important to customer acquisition. In just half a quarter alone, it added 1,000 of the 8,000 paid customers that we saw in Q2. And we like the trends that we’re seeing kind of month-to-month coming here into August.
We feel like after what was a fair amount of headwinds and volatility in Q2, we’re still in a volatile environment. Don’t get me wrong. But we’re now able to see a bit more stability as well as improving trends looking here at Q3. And we’ll see how Q4 goes from there.
ALEXIS CHRISTOFOROUS: All right, slack CFO Allen Shim, good to have you here.
ALLEN SHIM: Thanks for having me.