Slack CEO Stewart Butterfield touted its customer wins against Microsoft Teams, but analysts worry the coronavirus crisis will hurt its ability to compete

• Slack CEO Stewart Butterfield highlighted deals the company signed last quarter where customers chose it over Microsoft Teams, its chief competition in the work chat app market.
• Although Butterfield didn't give specific names, he said those customers included a large defense contractor and a Fortune 100 retailer.
• While customer wins over Teams have some analysts more hopeful about Slack's future prospects, others worry that the spectre of coronavirus looms over its ability to compete with Microsoft.
• With Slack's ability to send salespeople out to close deals limited by the spread of coronavirus, and more of its customers working from home, analysts fear that the market may favor the incumbent - in this case, Microsoft, which has established relationships with most major companies around the world.
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Slack CEO Stewart Butterfield touted the company's customer wins against Microsoft's rival Teams chat app during a call with analysts after it reported earnings on Thursday. But analysts fear that Slack's future prospects to compete with its much larger rival may be dimmed by the ongoing coronavirus crisis.

At the time of publication on Friday, Slack's stock was the lowest it has been since it went public via direct listing last year. The dip came after it reported earnings that beat Wall Street estimates, but that still showed a weaker-than-expected forecast for next quarter and signs of slowing growth.

On the call, however, Butterfield spotlighted several customers it signed on in the quarter that picked Slack over Microsoft Teams. Although Butterfield didn't give specific names, he said those customers included a large defense contractor and a Fortune 100 retailer. Butterfield also echoed previous claims that many of Slack's largest customers tend to also be Microsoft customers who still choose the app because it works better for them.

"Slack scales elegantly for both end users and administrators. Slack's superior user experience and platform capabilities result in real engagement. And if you want to change the way people work together through software, people have to actually use the software to work together," he said.

While these anecdotes about customer wins over Teams have some analysts more hopeful about how Slack will fare in this competitive environment, some are still skeptical, and now worry about the impact that coronavirus might have on the company's ability to close the big deals it needs to show further growth.

Coronavirus casts a long shadow

The spread of coronavirus has put Slack in a precarious situation.

As a workplace collaboration tool, Slack is well positioned to help enable increased remote work amid the coronavirus outbreak, and has seen a spike in usage for the free version of the app as a result. However, the company was careful to tell analysts that it is not yet certain if that growth will translate into a long-term bump in paying customers.

Meanwhile, Slack's growth comes from signing on large customers, like the ones Butterfield described during the call with analysts. But Slack attributed its weaker-than-expected guidance for the next quarter to the disruption in travel and overall economic uncertainty caused by coronavirus, which it says could make those deals more difficult to close.

Analysts see that as another factor potentially working against Slack, putting more pressure on its competition with Teams going forward - especially given Microsoft's existing relationships with most major companies all over the world, making it that much harder for Slack to compete.

"Slack has become much more weighted to the enterprise over the past few years, and with sales reps out of the field, closing deals can be particularly challenging. In our opinion, taking a conservative view on guidance is the appropriate course at this point," Arjun Bhatia, an analyst at William Blair writes in a note published Friday.

Dan Ives, an analyst at Wedbush, said he thinks the low guidance was due to the competition from Microsoft, in addition to the general uncertainty in the global economy right now.

"No investor doubts Slack's cult-like product portfolio and impressive growth trajectory, the issue comes down to its long-term growth profile with Nadella and Redmond laser focused on its Teams and the Office 365 opportunity and how this likely impedes the Slack growth train in our opinion heading into FY21 and beyond," Ives writes in a note published Friday.

William Power, an analyst at Baird, has a more positive outlook. He thinks while deals might take longer to close because salespeople aren't traveling, the boost Slack - which trades under the ticker symbol WORK - is getting from more people working remotely will translate to more paid customers in the long term.

"Though early, WORK expects enterprise sales cycles to lengthen, driven by less travel and fewer face-to-face meetings and conferences. On the other hand, usage, particularly among the entry free users, has been surging across geographies, which should translate to more paid customers over time," Power writes in a research note.

As for Butterfield, he's taken jabs at Microsoft Teams before, dismissing its daily active user growth as forced because it comes from users of other Microsoft products being force migrated to Teams. Microsoft for its part has touted its daily active user numbers as growing faster than Slack.

As of November 2019, Teams has 20 million daily active users, and Microsoft executives last month shed some light on how that is calculated, saying passive actions don't count. Slack has 12 million daily active users as of October 2019.

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