Many people will think Slack Technologies Inc. (NYSE: WORK) is a value investment because of its low price.
Mr. Market was paying $22.14 a share for Slack on 22 January 2020, for instance. However, Slack’s platform is tiny when compared with Facebook (NASDAQ: FB).
Slack claimed to have over 12 million daily active users on its platform in September 2019, a press release claims. Additionally, Slack claims those users performed over five billion actions a week in the same period.
Slack claims its average user spends over 90 minutes on its platform each day. In addition, Slack claims its average member connects for over nine hours a day.
Slack’s incredible growth rate
If Slack’s claims are true, its platform is growing at an incredible rate. For example, Slack admits that platform had less than one million active users as recently as 2014.
Additionally, Stockrow estimates Slack’s revenue grew at a rate of 59.7% in the quarter ending on 31 October 2019. Plus, Stockrow calculates Slack’s grew at an astounding rate of 66.61% in its first quarter as a publicly traded company. That quarter ended on 30 April 2019.
One reason why Slack is growing so fast is that it claims to have 600,000 daily active registered developers. Hence, Slack has a huge base of developers adding value to its platform with new apps.
Slack vs. Microsoft
Slack; however, could face an impossible challenge competing with Microsoft (NASDAQ: MSFT).
Microsoft claims its Slack killer; Microsoft Teams, had over 13 million daily active users and over 19 million weekly active users in January 2020, The Verge reports. Thus Microsoft teams’ platform could be bigger than Slack’s.
Plus, Microsoft has a far larger pool of developers. Microsoft’s software depository subsidiary Github claimed to have over 40 million developers in its Octoverse in 2019.
The Github developers received over 87 million pull requests and closed over 20 million issues in 2019. The Octoverse is growing at an incredible rate. Github claimed over 10 million developers joined the Octoverse in 2019.
Can Slack compete with Microsoft?
I think it could be impossible for Slack (NYSE: WORK) to compete with Microsoft because of cash.
To explain, Slack reported cash and short term invests of $774.11 million on 31 October 2019. That number fell from the $841.07 million reported on 31 January 2019.
In contrast, the Microsoft Corporation (NYSE: MSFT) had $136.636 billion in cash and short-term investments on 30 September 2019. Additionally, Microsoft reported a quarterly operating cash flow of $13.818 billion and an ending cash flow of $13.177 billion on the same day. Thus, Microsoft has unlimited amounts of cash to throw at the problem of business cooperation in social media.
For example, Microsoft can afford to pay developers far more for new apps than Slack can. Plus, Microsoft can afford to give Microsoft Teams away to get organizations to use it.
How Much Money is Slack Making?
I think the inability to make money dooms Slack. For instance, Slack reported a -$87.77 million net loss on 31 October 2019.
Slack also reported a quarterly operating loss of -$95 million on the same day. However, Slack reported a quarterly gross profit of $145.59 million on revenues of $168.72 million for the quarter ending on Halloween 2019.
To make that money Slack is burning cash. Slack reported a -$9.10 million operating cash flow and an ending cash flow of -$21.80 million for the last quarter.
Slack also reported a financing cash flow of $11.16 million for the same period. I think the financing cash flow shows Slack is borrowing money to finance its operations.
Therefore, I think Slack makes no money and shows no potential to make money. Given those insights, I recommend investors to stay away from Slack.
Stay Away from Slack
Predictably, Slack (NYSE: WORK) pays no dividend because it generates no income.
Thus, I think the only potential value at Slack is the possibility of purchase by a company such as Microsoft or Facebook (NASDAQ: FB). Since Slack had a market capitalization of $12.64 billion on 17 January 2019, Microsoft could buy it for cash and have $123.996 billion left.
I predict Slack will not survive as an independent company because it has so little money. Therefore, I think the only potential value Slack could offer investors is a higher stock price generated by acquisition stock. Hence, I think Slack is a stock for speculators; or a stock to short, not an equity for ordinary people.