Slack leans on Connect for future growth

Slack executives are banking on the company's new email-like product Slack Connect to help reverse a revenue slowdown.

The company forecasted this week that revenue growth in the current fiscal quarter would diminish between 32% and 33% year to year. The forecast showed the collaboration vendor wasn't benefiting from the work-from-home boom like its rival Zoom, which expected 283% growth for its fiscal year ending in January 2021.

Slack's relatively weak performance contributed to an 18% drop in its stock price Tuesday after the company reported fiscal second-quarter earnings. Revenue for the quarter ended July 31 was $215.9 million, up 49%.

Slack expects to jumpstart growth in the coming months, in part through Connect sales, which CEO Stewart Butterfield called "a new path" to potential customers.

"We also believe it serves as a key product differentiator and an important factor in retention," Butterfield said during an earnings call. He added that he expects the product's contribution to revenues to become visible by the end of the fiscal year.

Launched in June, Slack Connect allows up to 20 different organizations to share a messaging channel. The inter-organization feature is an alternative to traditional email.

Technology analysts were optimistic about Connect's chances in the market.

Stewart Butterfield

"I think Slack Connect has potential to drive growth of their business platform by providing the ability of its customers to use it for multi-company collaboration," said Irwin Lazar, an analyst at Nemertes Research.

Prezly, a maker of online software for managing marketing campaigns, uses Connect to collaborate with partners. The company initially chose Slack because of its ability to integrate with other collaboration applications used by Prezly employees, said Kate Bystrova, head of marketing and PR.

"Slack just went in really hard on integrations, so that was why we switched to it years ago," Bystrova said.

As a Pure-play collaboration vendor, Slack lacks a full suite of communication applications, said Dave Michels, principal analyst at TalkingPointz. Companies that have much broader portfolios include Microsoft and Cisco.

"Many of [Slack's] prospects don't even evaluate it, as they perceive a bundled alternative to be the path of least resistance," Michels said.

Slack has filed an antitrust claim against Microsoft with the European Commission. Slack accuses the company of trying to gain an anti-competitive advantage by bundling its competing product, Teams, with the 365 office productivity suite.