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The company is in the process of working towards an exotic direct listing on June 20th, eschewing the traditional IPO process. Instead, Slack will begin trading on the 20th of June without selling a bloc of new equity and setting a normal IPO share price.
How it performs when it does begin to trade will hinge on its financial performance, so let’s sink our teeth into what is new from the company and its accountants.
In a preceding S-1/A filing, Slack detailed an expected range for its first quarter. Just for fun, here’s that particular bit of data (you can hunt it up in-context here):
Those ranges are incredibly tight, you’ll notice. Slack had revenue pegged within a million dollars and calculated billings to a mere $2 million range off a higher base.
How did Slack bear out? Here are the comparable results to the above-expected metrics:
- Slack Q1 Revenue: $134.8 million
- Slack Q1 Calculated Billings: $149.6 million
Slack, therefore, landed at the top of its Q1 revenue estimate, and just $100,000 under its upper-end calculated billings result. Someone buy its accounting team a raft of cupcakes, this was a clean brace of projections and results.
But all of that doesn’t tell us what we really need to know, which is how fast Slack is growing, and how much money it currently costs the firm to do so. So let’s check in on precisely that. From today’s filing, a few metrics and their pertinent deltas:
- Slack Q1 year-over-year (YoY) revenue growth: 66.6 percent
- Slack sequential-quarterly revenue growth: 10.7 percent
- Slack Q1 net loss: $31.9 million
- Slack year-ago net loss: $24.9 million
- Slack Q1 net margin: -25 percent
- Slack Q1 free cash flow (FCF): -$34.2 million
- Slack year-ago FCF: -$15.0 million
Alrighty, so what? The short answer to what all that means is that Slack is allowing its net deficits and cash burn to rise as it scales revenue.
Normally during an IPO run-up, I note that rising losses as the cost of growth makes for a harder-to-find path to profitability and that that could ding the firm’s final pricing and so forth. Here’s the thing, though: Slack doesn’t really care what you or I think.
The firm isn’t pricing; it’s direct listing. And it closed out its most recent quarter with more than $792 million in cash. If you look up the definition of “Fuck You Money,” most dictionaries now return a copy of Slack’s IPO filings. At a burn rate of $34.2 million a quarter, Slack has just under six years of cash available. It will not never, ever run out of money unless it loses focus and crashes itself into the side of a mountain.
Slack is probably pretty content with its new-normal quarterly Sales and Marketing spend of $66 million to $68 million. Why not? Putting up double-digit percentage sequential-quarterly growth is bonkers for a company doing north of $100 million in quarterly revenue.
It’s not like Slack’s margins are in trouble either. In its most recent quarter, Slack had gross margins of a little more than 86 percent. Find a problem with that; I dare you.
Slack is spending plenty to pick up more than $10 million in high-margin ARR every quarter it can expect to grow by 38 percent each year (the firm’s “net dollar retention” in its most recent quarter was 138 percent). Oh no, the horror.
I’m excited about this one.
Illustration: Li-Ann Dias.