When you’re one of the fastest growing enterprise apps ever, conventional wisdom about revenue and valuation becomes almost irrelevant — or at least, that seems to be the case with hotshot business communication app Slack, which reached a $US2.8 billion valuation in less than two years.
Slack CEO Stewart Butterfield was on stage at the Fortune Brainstorm Tech conference, where he revealed that his company is expected to make $US30 million in revenue this year — roughly 100X its current valuation.
Considering the highest multiple for any publicly traded online software company is Xero’s 15X, Slack’s outsized multiple seems incredibly high. Even if you factor in the fact that Slack is a startup with massive potential, conservative investors would never toss out that kind of a multiple to a two-year old app.
But this being Silicon Valley — where unconventional wisdom could easily top any kind of old, textbook saying — investors have been lining up to throw money at Slack. In the last 15 months, Slack has raised roughly $US320 million ($US340 million in total), and Butterfield reiterated on stage today that he has $US300 million sitting in the bank that should serve as a good cushion should any type of downturn happen.
The only way to reasonably justify Slack’s valuation is through its unprecedented growth rate. It was just about three weeks ago when Slack said it’s expecting $US25 million in annual recurring revenue (the one year extrapolated sales figure based on current month’s subscription contracts). That means, at today’s $US30 million, Slack’s adding almost $US250,000 in revenue every single day.
Plus, Slack’s daily active users — different from registered users who rarely log-in — have been growing at an exponential pace, meaning it’s becoming a big part of its users’ daily lives. When it officially launched in February 2014, Slack had only 15,000 DAUs. That grew to 500,000 DAUs in the next 12 months and hit 750,000 DAUs by April 2015. On Tuesday, Butterfield said that number’s jumped to 1.1 million.
With that kind of a userbase, you’d think Slack would want to monetise those eyeballs with advertisements. But Butterfield said that he has no plans for ads any time soon.
That means Slack is going to continue to run a simple business model of charging each user $US6.67/month or $US12.50/month. It also has a more robust enterprise package that costs $US48/user monthly. Butterfield said over 300,000 of the 1.1 million DAUs are currently paying.
It’s hard to say if Slack’s valuation makes much sense at this point. Its revenue is small by any means for a $US2.8 billion company, but if you’re betting on its massive growth to continue, it may not be all too bad.
One chart that illustrates Slack’s wild growth comes from Okta, an enterprise security company that surveyed more than 2,000 of its customers to see what work collaboration app they use. Slack turns out to have surpassed some of its older competitors Hipchat and Asana by a wide margin already, as seen below:
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