Will Slack Live Up to Its Valuation Based on Growth and Usage?

Slack’s latest round from SoftBank valued the company at around $5 billion. With a recent revenue of $300 million, will Slack be able to meet that valuation through growth and user engagement?

Comparing Slack's Valuation to Public SaaS Companies

In order to understand whether Slack's valuation is justified, it's essential to compare it to other publicly traded SaaS companies. For instance, CRM companies generally trade at around 8x trailing 12-month revenue, while WDAY and TEAM, which are more comparable in terms of their product features and market position, trade at 12x and 18x trailing 12-month revenue, respectively.

By applying these multiples to Slack's recent revenue, we can estimate a valuation of anywhere from $2.4 billion (using the lower multiple) to $5.4 billion (using the higher multiple). Assuming Slack's revenue has grown to $300 million, this provides a range of potential valuations based on market comparables.

Growth and Enterprise Potential

While a multiple-based analysis is helpful, it doesn't fully capture Slack's potential. The company's growth rate is one of its strengths. As a rapidly growing company, Slack has demonstrated continuous revenue growth well beyond that of its peers. In fact, a YoY growth rate of 100% or more is feasible, given Slack's current status as a company still in the hundreds of millions of revenue range.

Slack's potential in the enterprise market is particularly exciting. The company is just starting to tap into this lucrative segment, where significant deals in the eight and even nine figure range can be anticipated. It's likely that Slack has already closed several such deals. Valuations in the tech industry often consider future growth prospects, and Slack's potential to capture a larger market share in the enterprise space could justify a higher valuation.

User Engagement and Consumer-like Characteristics

Another factor that sets Slack apart is its user engagement. Slack has a daily active user base of 6 million, and users are genuinely motivated to log in daily. Slack also offers a wide range of use cases beyond typical enterprise communication, such as planning weddings, arranging elderly care, and more. The user experience is comparable to consumer apps like Facebook and Snapchat, which further enhances user stickiness.

Slack also alleviates a critical pain point for businesses: efficient messaging. Its ability to handle urgent communication and its potential to cause significant disruption when down indicate its strategic importance. With the evolution of the platform and its ecosystem, there is a strong possibility that Slack will become the preferred messaging platform over alternatives like Google Chat and Facebook Messenger.

Potential Valuation and Revenue Projections

Given the unique combination of growth and user engagement, Slack may be valued more like a consumer app than a traditional SaaS company. To estimate its valuation, we can use the median of the multiple range mentioned earlier. Assigning a valuation multiple of 21x to Slack, we get a valuation of $6.3 billion at $300 million in revenue, which implies that the revenue will continue to grow significantly over time.

Conclusion

Slack is on track to deliver on its valuation, especially considering its growth trajectory and unique user engagement levels. By leveraging its market position in both enterprise and consumer markets, Slack can potentially achieve a valuation well above $5 billion in the coming years, making it an exciting investment opportunity in the tech sector.