This Stock Will Be The Next BIG Name In Tech
Slack Technologies is considered one of the fastest-growing technology companies of all time.
What started as a failed venture to build a multiplayer online game gave birth to a successful internal messaging system, known today as Slack Technologies (NYSE:WORK).
Businesses have traditionally used email messages to communicate internally, a system long overdue for an upgrade. But it wasn’t until Slack’s unique platform introduced a modern communication process with built-in hashtags — and allowing GIFs, emojis, document sharing, and featuring a friendly reminder system –vthat a messaging platform became a verb. Employees these days say things like “I’ll Slack it to you,” meaning “I’ll message it over to you.”
Microsoft Teams vs. Slack: A comparison
Before I introduce the fundamentals of the two companies, here’s a brief overview of the two products along with my personal opinion, having used both technologies in fast-paced workplaces.
Microsoft (NASDAQ:MSFT) Teams is yet another app among the Microsoft suite of apps available that enables team collaboration and internal communication. If you’re familiar with the old-fashioned MSN messenger, consider Teams the modern version of MSN’s messenger platform from years ago.
With Microsoft Teams, you have the ability to send instant messages to anyone within your organization, communicate via group chats, video web conferences, and group calls.
I used Microsoft Teams years ago as an insurance agent. My employees and I were able to communicate in an effective way without having to shout across the office, and I was able to collaborate with other agents and mentors within the organization. This saved us a lot of time and effort, as the alternative would’ve been to get up and walk over to someone else’s desk to talk, or pick up the phone and call them. With Microsoft Teams, it was as quick and easy as sending an instant message, allowing me to get work done without interruption.
If Microsoft Teams is the modern version of instant messaging, consider Slack the future of internal communication already happening today. To avoid redundancy, Slack does everything that Microsoft Teams does in terms of communication, but with more very useful features such as:
- The ability to create separate “channels” on different topics that anyone can comment in and contribute to.
- The use of hashtags, emojis, and GIF images.
- The ability to upload and send files of almost any format.
- Integration with company updates such as having a #Sales channel that automatically posts updates of new sales and basic details, allowing a sales organization to stay motivated and up-to-date on its goals (for example).
- A personal assistant, known as Slackbot, that allows users to type in reminder requests such as “call John at 3:30 p.m. today,” which triggers Slackbot to send a reminder notification to complete the task.
Slack is an all-around communication hub that allows organizations to communicate faster and more efficiently, while keeping the emotional sentiment often lost in text-based communications. Slack even keeps an entire history of everything you’ve ever said within each channel, hence the name Slack, an acronym for “Searchable Log of All Conversation and Knowledge.”
The next organization I worked with was a user of Slack. We would always have at least two windows open, one for our customer relationship management system and another for Slack. Slack was the central place to get alerts, updates, and reminders for anything and everything within the organization. It allowed all 400-plus of us employees to communicate at once, while all still having our voice heard and not being muffled out from the loud chatter.
One thing was for sure: We were all up to speed on the latest within the company, and that allowed us to move at a very fast pace. In fact, this company where I worked when first introduced to Slack is one of the fastest-growing tech companies in the U.S. — no surprise.
Fundamental analysis of Slack and Microsoft
It’s a bit hard to compare Slack and Microsoft as investments from a broad standpoint. Microsoft has a trillion-dollar market cap with a large suite of products (both related and unrelated to Slack’s product), while Slack is a $14 billion company with one niche-focused product. Both companies are potentially excellent investments for a vast number of risk tolerances, and Microsoft clearly has an edge when it comes to track record, financial strength, and brand awareness.
So, in order to conclude whether Slack will be a great investment, we must determine whether Slack has the ability to win market share for its internal communication platform over the market competition (Microsoft Teams being the biggest competitor). To do so, I’ve outlined a few facts that support the strength of the internal communications products.
1. Active users
When it come to daily active users and number of organizations, both products have strong sustaining numbers.
- 300,000 organizations
- 13 million daily active users
- 600,000 organizations
- 10 million daily active users
The fact that Microsoft Teams has fewer total organizations and more daily active users may indicate it has a larger share of bigger companies using the product. This would make sense given that the company has over 180 million users of its other apps such as Microsoft 365, Microsoft’s subscription service to all its main business applications, including Teams. There is, however, something to say about Slack not having any added leverage to acquire customers (i.e., 180 million customers already using your other products).
We can look at price from multiple angles. On the one hand, a company with a cheap price has pricing power advantage over the competition with higher prices. But on the other hand, companies that can charge higher prices often have higher margins, and that’s good for investors, especially if customers are willing to pay higher prices for a better product.
Microsoft Teams: Free, $12.50/user per month for Office 365 Premium, $20/user per month for Office 365 Enterprise
Slack: Free, $6.67/user per month for Standard plan, $12.50/user per month for Plus
As a newly listed public company in growth mode, Slack is focusing on acquiring users at a fast rate, which it’s doing very well, and its prices certainly help. As Slack expands its user base, it wouldn’t be surprising if it increased its prices slightly, just enough to boost earnings and perhaps price out (push away due to increased price) certain unprofitable customer segments.
3. Customer satisfaction
To get a general idea of how customers feel about the two products, I researched two popular software websites whose focus is solely on rating and reviewing software platforms.
(User reviews were taken from GetApp and G2 customer ratings.)
- GetApp users rate Microsoft Teams 4.55/5, with a total of 8,123 reviews.
- G2 users rate Microsoft Teams 4.2/5, with a total of 1,078 reviews.
- GetApp users rate Slack 4.63/5, with a total of 15,586 reviews.
- G2 users rate Slack 4.5/5, with a total of 17,992 reviews.
Either Slack has a much more engaged customer base (also a great sign of an exceptional product), or its product is just that much better.
4. Competitive advantages/moats
Perhaps one of the biggest determining factors of a successful product and company is its competitive advantage.
Microsoft Teams: Microsoft’s Office has a user base of nearly 180 million, giving the company a large market of current customers to market its Teams product to.
Slack: Convenience goes a long way, and a notable convenience factor that allows Slack to compete with companies like Microsoft is its apps and integrations. Slack has over 1,500 apps within its app directory, over 4,000 apps that have been built to use with Slack, and over 900,000 integrations.
There is power in niche-focused companies
For me, having used both products, Slack takes the win hands down. Its fundamental growth and ever-increasing revenue only make it even more appealing for the investor who is looking for the next ten-bagger stock purchase (as Peter Lynch calls it).
These growth stats further illustrate how Slack Technologies is becoming more and more of a powerhouse company for internal communications:
- Revenue was $134.8 million for fiscal Q1 2020, an increase of 67% year over year.
- The company had 645 paid customers with $100,000-plus in annual recurring revenue, up 84% year over year.
- The paid-user retention rate is 98%.
Arguably, companies with a narrow focus have a stronger position than generalized companies. The same principle applies to a 150-watt light bulb that powers a room as compared to a 150-watt laser that cuts through metal. When taking a niche approach to internal business communication, Slack is able to dominate a trillion-dollar powerhouse like Microsoft Teams, creating a great investment opportunity for those who recognize it.