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Slack Technologies Inc.(WORK) “Seeking Stocks that can Double in 2-3 Years” GRAB AND GO 7-PACK Slack Technologies Inc.(WORK) ” An investment in Slack is a play on demand for enterprise communication software. Slack is a cloud-based platform built for businesses to send messages, make video and phone calls, and collaborate internally and externally on work projects. It is one of the top vendors in this space, but product innovation and aggressive sales in the enterprise will be two areas it needs to continue to perform to remain in the lead.” Recommendation: NEUTRAL Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) Slack Technologies Inc. WORK Performance Valuation History Grab-and-Go 7-PACK Share Price (as of 4/21/20): $29.13 RSI (as of 4/21/20): 49.9 Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 1 Slack Technologies Inc. Company Overview CEO/Founder . Slack is a cloud-based platform built for . Stewart Butterfield is the co-founder and businesses to send messages, make video and current CEO of Slack. phone calls, and collaborate internally and externally on work projects. It provides its . Prior to Slack, he founded a few other start- Grab-and-Go services as a subscription-based SaaS model. ups including Flickr. Slack was an internal communication tool built for his game 7-PACK . The company was founded in 2014 by Stewart company Tiny Speck, whose product did not Butterfield. gain traction to become profitable. Slack became a public company in June 2019 . Butterfield led Slack through a successful IPO and is headquartered in San Francisco. and grew Slack to become a well-known software company. Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 2 Slack Technologies Inc. Total Addressable Market (TAM) Competitive Environment • Slack competes with point solution vendors such • Slack’s TAM is estimated at $28 billion today. as Zoom and larger productivity suite software About 2.5 million businesses in the United firms such as Microsoft, Cisco and Google. States fall in Slack’s target market group. • Slack’s biggest competitor is the Microsoft’s Teams application. It is bundled with the Office 365 Grab-and-Go package which significantly lowers friction to 7-PACK adoption for many companies. • Slack and Microsoft are the top two vendors, with Slack slightly behind by number of Daily Active Users. • Slack has shown market share growth over time, even drawing customers away from Teams, but it will need to expand its product features more to demonstrate a large enough differentiation for customers to leave Teams. Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 3 Slack Technologies Inc. Business Catalysts Headwinds/Tailwinds • Announcements of new technology add-ons • Enterprise digital transformation is pushing or features that could be monetized organizations to rethink their communication separately could catalyze the stock price. and work collaboration software. Many are frustrated with email. Grab-and-Go • Other possible catalysts include accelerated 7-PACK growth in the number of large accounts, • However, Slack faces some headwinds in news of higher number of active users when competition. Microsoft is a formidable peer compared to Teams, and outperformance of and while Slack’s software performs better, quarterly results. the differentiation may not be large enough for companies to switch from a free application. Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 4 Slack Technologies Inc. WORK Valuation 1 Estimates of Revenue Growth Valuation 2 . Slack has been growing rapidly at a CAGR of 81.6% between FY17 and FY20. WORK’s P/S ratio has trended between 14 We expect continued high growth rates in – 45 since its IPO. the next few years. Valuation continues to be expensive when . Revenue guidance for FY21 indicate a 35% compared to peers. YoY growth. Grab-and-Go 7-PACK Return on Invested Capital (ROIC) Margins . Slack is projected to only become . Gross margin is very high at 88%. profitable in the medium term. Operating and free cash flow margins are . A normalized long term ROIC is slowing improving but likely to still fluctuate and remain negative in the short 3 expected to be in the range 15-20%. term. 4 Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 5 What sets WORK apart? . Slack is email Quality of the software is replacement and more. high, and the company The platform is reportedly has several Special/Unique versatile, has a good Quality of customers that moved away from Microsoft Teams to Characteristics range of communication Product/ tools, and very easily Slack. of WORK Service Grab-and-Go scalable. 7-PACK Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 6 Why we rate WORK stock a NEUTRAL What we like… What we don’t like… Enterprise digital transformation opens up opportunity to revamp communication tools. Profitability expected to occur in the medium term. Strong competitive position. Communication software pure play that Expensive valuation. has no competing products for R&D Grab-and-Go resources. Negative cash generation and Slack may need to raise funds for growth in the near 7-PACK to medium term. Business Rating: (5) Security Rating: (4) • Lost productivity has become an important concern for the • At a forward P/S of 18.3x, Slack is expensive, and not enterprise, and many are looking for software to change reasonably matched to financial risks from a negative free communication and work collaboration behaviors within cash flow, heavy growth investments and profitability the organization. only in the medium term. • Microsoft and Slack are the top two vendors in this space. • Unlike Microsoft, Slack has a singular focus in innovating for its platform only. Left Brain Investment Research, LLC all rights reserved. Not to be used or reprinted without permission. 4 / 2 1 / 2 0 2 0 (These are hypothetical examples, not to be shown or distributed without permission of LBIR.) 7.
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