Slack IPO Analysis

Delivered June 27th, 2019. Contributors: Lloyd M., Rosalyn D., Daniela B. and

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Slack IPO - Enterprise Customers and User Information

In finding information about Slack's Enterprise customers and users, your research team found that there are 150 enterprise users on Slack's Enterprise Grid plan and there are approximately 5,100 users per enterprise customer. The methodology and calculations there were used are explained in more detail below.
SLACK ENTERPRISE CUSTOMERS AND USERSOne definition of a large enterprise is an ARR of greater than $100,000. Slack had 575 paid customers with an ARR greater than $100,000 as of January 31, 2019. That accounted for 40% of revenue in FY 2019.
According to Slack's IPO prospectus filing, large enterprises are those that have more than 5,000 employees. They define medium-sized organizations as those that have 250 to 5,000 employees. However, they do include medium-sized organizations with over 1,000 employees in the definition of 'enterprise'.
There are 150 enterprises that are using Enterprise Grid, according to the most recent figures. They have 65 customers in the Fortune 100.
NUMBER OF AVERAGE USERS PER ENTERPRISE CUSTOMERIn 2015, a year after their founding, there were 168 users per company, with 60% of those being large enterprises.
The most recent figures state that Slack had over 3 million paid seats/users. According to estimates, there is now an average of 5,100 users per enterprise customer.
RESEARCH STRATEGYWe started our search by looking though Slack's IPO prospectus filing. They defined large enterprises as greater than 5,000 employees with medium-sized businesses going from 250 to 5,000 employees. However, we found proof that they consider some medium-sized businesses as enterprise customers too, with 'enterprise' starting at 1,001 employees and 'large enterprise' starting at 7,501 employees. Even though the definition of a large enterprise is different, there is a good overlap for 'enterprise' with 1,000 employees and up, which is why we used figures for enterprise from both their IPO filing and other sources. Also, according to the filing, the Enterprise Grid plan was designed only for large operations, which shows that 100% of these customers will fall within this range. Calculations were made as it relates to Enterprise Grid customers, and not enterprise customers without this plan.

Since the filing did not have any mention of users per enterprise customer, we resorted to calculating our own estimates. We found the total number of paid seats/users and in the IPO filing we had the number of paying companies, so we found the percentage of Enterprise Grid customers as it relates to the total number of paid customers, then used that to find the average of users per Enterprise Grid customer. Calculations are explained in more detail below.
CALCULATIONSPercentage of enterprise grid customers to overall paid customers = (number of enterprise grid customers / number of paid customers) * 100%
= (150/88,000) * 100%
= 0.0017 * 100%
= 0.17%

Since the number of paid customers (companies) is 88,000 and they have in total 3,000,000 users, we only need to use the percentage of enterprise grid customers in relation to the total number of paid customers to find the number of users per company on the enterprise grid plan.
= 3,000,000 * 0.17% 
= 5,100 users per Enterprise Grid customer

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Slack IPO - Revenue Data and Revenue per User

According to the IPO prospectus filing for Slack, the company has generated $400.6 million in 2019, with a 110% annual growth rate.

FindingsIn 2017, 2018, and 2019, Slack generated $105.2 million, $200.5 million and $400.6 million annual revenue respectively.
According to Slack's report, there are 575 paid users of more than $100,000 each of APR accounting for 40% of 2019's annual revenue.
In 2019, the company had 88,000 paid users total.
In 2018 and 2019, Slack generated 10% and 8% of their revenue, respectively, from free users that converted to paid users.
The average calculated revenue per paid user over $100,000 of APR is $278,678 per year and $23,223 per month.
The average calculated revenue per paid user is $4,552 per year and $379 per month.
There are over 500,000 organizations using the companies free subscription plan.
Research StrategyIn order to calculate a breakdown of revenue generated per paid user, we used the following metrics:
Paid users over $100,000
Per Year: 400,600,000(2019 revenue) *.40(percentage of revenue)=160,240,000; 160,240,000/575(number of users)=$278,678.26 per year.
Per month: $278,678/12=$23,223.19 per month.
All paid users
Per Year: 400,600,000(2019 revenue)/88,000(number of users)=$4,552.27 per year.
Per month: $4,552/12=$379.33 per month.

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Slack IPO - Number of Active Versus Non-Active Users

As of January 2019, Slack has 10 million daily active users. On Slack, an active user is considered as one who has been online at least once in the last 14 days.
SLACK'S ACTIVE USERSDuring the three months ended January 31, 2109, Slack’s daily active users exceed 10 million (free or paid subscription plan).
As of 2018, Slack has 88,000 paid customers of which 575 are in subscription plans that cost more than $100,000/annually.
Slack counts any organization with three or more users on a paid subscription plan as a "Paid Costumer".
 40% of their revenue in 2019 was generated by Paid consumers in the >$100,000 plans.
Slack is used by more than 65 companies in the Fortune 100.
Slack automatically detects when members become inactive. When that happens, they will deposit prorated credits to the company’s Slack account and they will be applied when new members are added or on the next renewal date.
Members are considered Inactive when they haven’t used Slack in over 14 days or when they are deactivated by a Workspace Owner/Admin.
As of 2018, Slack had 3 million paid users.
As of 2018, more than 150 companies subscribe to Slack’s Enterprise Grid plan.
The Enterprise Grid plan is designed to accommodate the need of companies with over 50,000 employees and it's used by companies like IBM, Target, Conde Nestel, among others.
RESEARCH STRATEGYWe started our research by thoroughly reviewing the Slack’s IPO. There we found several insights on the number of active daily users, paid costumers, companies served, revenue, etc.; however, Slack doesn’t divulge their total number of users, only daily active users (10 million). It’s revealed that they have 88,000 paid costumers, 575 of which spend over 100,000/annually on subscription fees (costumer here equals companies, not users). 

We also checked the Slack website for inactive users, but no further information could be found to answer the question. 
We then conducted a search through other sources such as Bloomberg, Forbes, TechCrunch, BusinessInsider etc. We were able to discover that out of the 10 million users, 3 million are paid customers (are part of companies that are paid, customers). We also found out that as of 2018, 150 companies subscribed to the Enterprise Grid Plan, but again no information about active vs inactive users. 

We looked for information that would allow us to draw a triangulation (total number of users, retention rates) etc. Again, although we found a report that states that Slack has a retention rate of 98%, it was talking about companies and not users and the source wasn't credible. We also noted that Slack has a return policy when it comes to inactive users, whenever a user is inactive for over 14 days or is deactivated by an Administrator, Slack will add a prorated credit to the company’s billing. We tried to uncover how much they spend on those returns monthly, hoping to find out on average how many users go inactive by month, but they also don’t disclose that information. 

Lastly, we switch our focus to the Enterprise Grid Plan; however, this proved again to be a little tricky. Slack’s IPO revealed that this Plan is for (but not limited to) companies with over 50,000 employees. Unfortunately, no information regarding active vs inactive users were found. They don’t even disclose the price for Enterprise plans on their website (only available upon request). We checked any reports by companies that are working with slack such as IBM, Target, Conde Nestel, among others, but no information about active vs inactive members was available, probably because inactive users are not billed. 

Slack automatically excludes from their count users who haven’t been active on the platform for the past 14 days and doesn’t release the information about those who are inactive. Our assumption is that this may be a marketing strategy. Most of the credible sites run with the reports that come from the company itself, meaning that, for the most part, it’s the same report being reproduced in different outlets (when it comes to active users, there are some variation on performances and stocks reviews). 