Slack Q4'FY20 Earnings Teardown
Slack posted its Q4 FY2020 earnings and the shares went down almost 20%. We dive into the earnings results.
Slack's share price was down 22% after releasing its Q4'FY20 earnings (results for fiscal year ending January 31st, 2020)
You can find Slack's earnings release here
Here's the key takeaways from the Q4'FY20 Earnings
- ARR is decelerating: $727m ARR growing 49% YoY... but growth down from last quarter 60% and 78% YoY a year ago. Note that Net new ARR is slowing down to $53.7m ARR in Q4'Fy2020 down from $65.3m ARR in Q4'FY2019!
- Net Dollar Retention still strong: 132% NDR still strong but down from 143% in Jan'19.
- Getting to Free Cash Flow Breakeven: Current Quarter FCF of -$835k vs -$31m in Jan '19.
- Barely misses Rule of 40: Given that LTM FCF % is -10%, Slack barely misses the rule of 40 (49% YoY growth + -10% LTM FCF % ~ 39%)
- Payback Period: Payback period is up ~21 months Jan'20 up from 13 months in Jan '19.
- Valuation Multiple: EV of $8.7b and EV/ARR of 12x at a share price of
- Market Reaction: The market had a sharp negative reaction because I think people thought Slack would be growing faster given remote work during COVID-19 and that IBM picked Slack over Microsoft Teams. It's worth noting that Slack's earnings are for ending January 31st, 2020 so earnings don't capture Feb-March when COVID-19 really started spreading and people worked remotely.