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Slack CEO Stewart Butterfield and his company have faced questions about its ability to compete with Microsoft's rival Teams product.
- Slack's third-quarter results were better than Wall Street expected, but analysts and investors are worried about its growth rate and competition from Microsoft's rival Teams product.
- Many analysts think Slack's new shared-channels feature could help with both problems, serving as a key way to distinguish the company's service from Teams and to encourage customers of its free offering to start subscribing to its paid one.
- Slack officially launched the new feature, which allows companies to create joint chat rooms with their partners to communicate and do business together, during the third quarter.
- Some 26,000 paid customers were using the shared-channels feature at the end of the quarter, up from 20,000 at the end of the second quarter, when it was still in beta testing.
- While many analysts are excited about the feature's potential, others aren't convinced it will give Slack enough of a boost to shake off the threat from Teams.
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Wall Street may not have been wowed by Slack's latest financial results, but many analysts are excited about the potential of one of the latest features of its service.
The company's new shared channels offering, which allows companies to set up joint chat rooms with their business partners, could help boost Slack's disappointing growth, analysts said.
"We continue to view Shared Channels as a meaningful differentiator and greater adoption likely drives greater stickiness," Rishi Jaluria, an analyst with D.A. Davidson, said in a research note on Thursday.
Slack introduced its shared-channels feature earlier this year as a beta-test product, then, during the third quarter, launched it officially. The company said that by the end of the quarter, 26,000 paying customers were using the feature, up from just 20,000 at the end of the prior period.
On an earnings call with investors Wednesday, Slack CEO Stewart Butterfield touted the shared-channels feature as the "most important innovation in the category since Slack first launched." Some 80 percent of the company's customers that pay it more than $100,000 a year now use the feature, he said. Slack has 821 paying customers that spend that much with it annually.
"Shared channels are unique to Slack. No competitor has brought anything similar to market," Butterfield said. "Not surprisingly, this has started to have an impact in the field."
Wall Street is bullish on Slack's shared-channels feature
Analysts are buying Butterfield's message. Many see shared channels as a way for Slack to distinguish its service from its main competitor, Microsoft Teams, and as a way to prompt users of its free service to become paying customers.
"Ultimately, we think Shared Channels can go a long way in increasing the viral nature of Slack and in driving stickier customers," William Blair analyst Arjun Bhatia said in his own research note Thursday.
Morgan Stanley's Keith Weiss agreed with that assessment.
"Shared channels should help to spark new use cases, increase engagement, and build a network effort around Slack," he said in a research note, also issued Thursday.
Additionally, the new feature could boost the total potential market for Slack's services, said William Power, an analyst at Baird Equity Research. Slack has previously estimated the size of that potential market at about $28 billion.
"We expect the Shared Channel opportunity to expand that further," Power said in a research note. "Anyone who uses email and/or other collaboration tools is a potential customer."
Some analysts are worried about Microsoft Teams
But some analysts aren't so bullish. Instead, they're concerned the shared-channels feature won't give Slack enough of a boost to shake off the threat from Teams.
Microsoft has been touting its huge leap over Slack in terms of customers. Last month, Microsoft said Teams had 20 million daily active users. By contrast, Slack said in October it has 12 million daily active users.
The software behemoth bundles Teams in with its Office 365 productivity suite for business customers, which analysts have said gives it a major advantage over Slack. But on Slack's earnings call, Butterfield dismissed Team's rapid growth, saying Microsoft is simply forcing customers to move to it from older products.
Among some analysts, though, worries linger. Team's growth shouldn't be underestimated and could slow Slack's attempts to attract more enterprise customers, Wedbush analyst Dan Ives said in a research note.
"We believe the company will have significant difficulty further penetrating the enterprise given the significant competitive offering from Microsoft's TEAM product," Ives said, adding that the pressure from Microsoft "could slow [Slack's] growth going forward quicker than the Street is anticipating."
While Slack reported strong third-quarter results and the new feature represents a promising opportunity, Oppenheimer's Ittai Kidron said in a note that now is not the time to buy Slack's stock.
We "would wait for a more attractive entry point, especially considering investor sensitivity to competitive exposure to Microsoft," Kidron said.
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