Business software firm Slack's shares plunge after it predicts a larger loss

[SAN FRANCISCO] The reality of being a public company is setting in for what were once some of Silicon Valley's hottest startups. The latest to get a taste of that: Slack.

In its first earnings report since going public in June, Slack posted a bigger loss than a year ago and a 58 per cent rise in revenue as its spending increased, owing partly to costs related to going public. The company, which makes business software, also projected that its losses for the current quarter would be wider than Wall Street expectations, sending its stock plunging more than 15 per cent in after-hours trading.

Stewart Butterfield, Slack's chief executive, said that it would take time for the market to understand his company since it had created a new category of software, unlike soda or cars.

"Everyone understands what those things are and why they need them," he said. Over time, he added, "people will develop a more mature understanding" of Slack.

The results followed months of scepticism about Slack's business. Since the company went public in a direct listing, its shares have steadily fallen. It faces tough competition from bigger and better-funded competitors, including Microsoft. Slack has tried to distinguish itself by saying that it is not distracted by old products or other priorities and that it is completely focused on making software that helps workers collaborate and communicate.

Slack's recent performance echoes that of some other once-sizzling startups, such as Uber and Lyft, which also went public this year and have stumbled since their offerings. Last month, Uber posted its largest quarterly loss, US$5.2 billion, and its slowest growth rate. Investors have questioned whether some of these companies, which are mostly unprofitable, can ever make money.

Yet that has not tempered the hype around the IPOs (initial public offerings). of tech-related startups. WeWork, the unprofitable real estate startup, and Peloton, the fitness company that is also losing money, are among those preparing to list their shares in the coming months.

Rohit Kulkarni, a senior analyst at MKM Partners, said investors were still hungry for fast-growing young companies, though Uber and Lyft's combination of slowing revenue growth and ballooning costs has scared some people.

"As a private company, you can grow at all costs. As a public company, you have to grow at reasonable costs," he said.

Slack sells subscriptions to companies whose workers use its software to message one another and work together. Its product was widely used among technology startups, before catching on with larger companies. In its offering paperwork, Slack estimated the entire market for workplace collaboration services was US$28 billion.

For its second fiscal quarter, Slack posted a loss of US$364 million, more than 10 times the loss of US$32 million from a year earlier. That included US$307 million in stock-based compensation and taxes related to the company's direct listing. Revenue rose to US$145 million from US$92 million a year earlier. Slack said it had more than 100,000 paying customers, a 37 per cent increase over last year.

But the company said it expected a loss of eight to nine US cents a share in the current quarter, which was larger than analyst expectations of a loss of seven US cents a share.

Allen Shim, Slack's chief financial officer, said Slack was making progress towards profitability, but was focused on investing in growth.

"That drive for growth is something you will see pay off over the quarters," Mr Butterfield said.

NYTIMES