Slack Forecast May Be Shaky Despite Maintained Revenue Growth Of 50%

Team communications software giant Slack has long been a popular communication tool for professionals and has continued to experience growth as companies bolster their remote offerings. Slack offers a single platform for messaging, video and voice calls, collaboration, document sharing, and more.

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Slack recently announced its second-quarter fiscal results and guidance for the entire year. The company’s revenue increased by about 50% to just under $216 million in the second quarter. This came in above estimates from analysts of $209.1 million. Other figures from the financial results include a net loss of $73 million, which compared to a year ago when it lost $360 million is notable progress.

Slack’s quarterly earnings were impacted by the global pandemic, as more people worked from home and relied on tools like the workplace chat platform to stay connected. The company’s revenue grew 50% in the previous quarter and 49% before that.

“In a volatile macro environment, we remain focused on investing for long-term growth and driving innovation in this category,” said Allen Shim, Chief Financial Officer at Slack. “Our largest customers are standardizing their work on Slack, and we ended the quarter with 87 Paid Customers spending over $1 million annually, up 78% year-over-year.”

Other highlights include Slack having over 130,000 paid customers, up 30% year-over-year, and its 125% net dollar retention rate. In the second quarter, the company also announced the acquisition of startup Rimeto, which it plans to operate as a standalone app.

Despite this growth, Slack's shares fell as much as 20% in extended trading on Tuesday, September 8. This led to a slew of analysts cutting their price targets. Slack’s stock plummeted to a five-month closing low of $25.24.

The reason for this drop came from Slack missing billings expectations and providing a third-quarter loss outlook. For the third quarter of the fiscal year 2021, the company expects a total revenue of $222 million to $225 million, representing year-over-year growth of 32% to 33%; non-GAAP operating loss of $27 million to $23 million; and non-GAAP net loss per share of $0.06 to $0.05.

The company has also seemingly fallen behind competitors like Zoom, which grew by 355% during the COVID-19 pandemic. To stay competitive in a saturated market, the company may need to expand its offerings and reduce the concessions it has been offering to customers that have been impacting its bottom line.