Wall Street has turned up its nose this year at big consumer technology floats, including those of the taxi-hailing services Uber, whose shares are up by less than 1 per cent from their offer price, and Lyft, which is down by 11 per cent (James Dean writes). It’s a different story, though, with technology companies that cater to businesses.
One of the most successful debuts of the year has been Zoom Video Communications, which develops video-conferencing software. Its shares are up by nearly 140 per cent since their April debut. Those of Crowdstrike, a cybersecurity company that was listed last month, are up by 90 per cent.
Slack is one of these companies. It falls into the “software-as-a-service” category, the new(ish) model of selling software as cloud-based subscriptions rather than downloads or on disks. It was created by accident in 2009 by developers at Tiny Speck, who had been working on a computer game that never reached the market. As a side-project, they created a tool that allowed them to message each other, their designers and their animators. It soon became clear that it had more commercial promise than the game. Tiny Speck became Slack Technologies in 2014 shortly after the company had released the Slack app to the public for the first time. In little more than a year, it was a “unicorn” — a start-up valued at more than $1 billion — and was the fastest company to achieve that hallowed status.
Slack integrates programs such as Twitter, Dropbox and Google Docs to provide a single stream of information on desktop and mobile. The Home Office and HSBC use it, young tech companies love it and some that adopted Slack early on say that they barely use email any more.
Slack took a direct listing on the New York Stock Exchange on June 20, becoming the second significant company to do so after Spotify. The NYSE put a “reference price” of $26 on the shares, but they opened at $38.50 and have roughly stayed there since.
Slack estimates that the market for apps such as its own is worth $28 billion a year. It isn’t alone. Microsoft Teams is its main competitor, while Google, Facebook and Cisco offer workplace collaboration and messaging tools. Slack had about ten million daily users at the end of last year in 600,000 organisations that employ three or more people. About 95,000 were paying customers. Microsoft Office 365, the software suite that includes Word and Excel, has about 285 million commercial users, according to Bernstein, a broker.
Slack’s business model, a bit like Spotify’s, is to get companies hooked on the free version of its app and then to encourage them to upgrade to the paid product. Cal Henderson, its chief technology officer, said on debut day that the company was “only 1 per cent or 2 per cent” into its global expansion. About a third of Slack’s revenue came from outside the United States last year, but its international user base nearly doubled.
Slack’s sales grew by nearly 82 per cent year-on-year last year to $400.6 million and the company forecast sales growth of 47 per cent to 50 per cent this year. It hasn’t turned a profit yet, but its losses were $138.9 million last year, down from $144.6 million the year before.
As with Uber, Slack has effectively created its own market, which makes it hard to gauge where it might be going. The shares continue to trade at a significant premium — close to 24 times its projected revenue next year, according to Baird, a broker. This is high in the software-as-a-service category and suggests that a good degree of projected growth has been priced in already.
ADVICE Hold
WHY Slack has a promising future but the shares look pricey in the medium term
Daily Mail & General Trust
The Daily Mail did not hide its delight at the vote for Brexit three years ago. “Take a bow, Britain,” it thundered in a jubilant front-page splash, as it took aim at the “arrogant, out-of-touch elite” (Simon Duke writes).
Its publisher, controlled by Lord Rothermere, has found less to cheer. The Brexit vote, as the Daily Mail & General Trust has noted in several stock market disclosures, has hit consumer confidence and advertising spending. Nevertheless, DMGT has suffered far less damage than ITV or Reach, publisher of the Daily Mirror. Its business information and data operations have partly shielded it from advertising’s fickle flows and its share price is trading at a two-and-a-half-year high.
The company’s roots run deep into the history of the newspaper industry. The Daily Mail was first published in 1896. Its media assets, including the Mail Online website, account for just under half of revenues, with the remainder coming from information businesses for the insurance, property, energy, education and finance sectors.
Paul Zwillenberg, chief executive, has pruned back its sprawling structure since taking over in 2016. Last year the group sold its remaining stake in Zoopla, the property site. In April its £662 million stake in Euromoney, the financial publisher, was spun off to shareholders and it paid them a £200 million special dividend. Net debts have fallen sharply under Mr Zwillenberg, from £679 million when he joined to £146 million by the end of March.
The question is whether any of its present bets can be as successful as Euromoney and Zoopla. DMGT’s great hope is RMS, a catastrophe insurance outfit. The division, which generates more than £100 million in annual revenues, shows promise but has a history of misfiring. DMGT will hold an investor meeting today to talk up its prospects. The division may be on the up, but even the most bullish analysts do not expect it to hit top stride for a couple of years.
Since the start of the year, DMGT shares have risen by a third and, according to Morgan Stanley, are trading on more than 20 times projected earnings for this year. A high cover price.
ADVICE Hold
WHY Good investment record, but shares are expensive