Microsoft Corporation (NASDAQ:MSFT) is a long-time player in the enterprise software game. Its Windows operating system, Office suite, and development tools like SQL Server and intelligent cloud, drive two-thirds of its revenue. This helped the company become one of the largest in the world and one of few trillion-dollar companies.
In the 20th Century, Microsoft was known to dominate smaller companies, and now it has its sites set on Slack Technologies Inc (NYSE:WORK). This software company creates productivity software and filed an antitrust lawsuit with the European Commission in July 2020 accusing the giant of anticompetitive behavior for Microsoft Teams.
Let’s check out Slack vs Microsoft stock to see how the post-coronavirus market is reacting to the heated competition between these two leading enterprise technologies. Let’s start with the newcomer.
Slack Revenue Increased 50%
The world shifted to remote work during the coronavirus pandemic, and this accelerated growth in a sector that was already emerging.
Slack’s software is reminiscent of IRC and XMPP messaging protocols, although it no longer accepts those and requires the use of its proprietary channels.
Still, the software enables remote teamwork and collaboration that could otherwise be impossible. It’s all done through a series of public and private chat channels.
Slack’s API makes it easy to integrate the tool with other software, such as Zendesk, GitHub, Google Drive, Dropbox, and Trello. It’s compatible with Android, iOS, Windows, macOS, and Linux, along with a browser-based version.
Not only is it a valuable business tool, but it also gets personal usage among tech-savvy consumers. This put Slack in the perfect position to reap the benefits of the coronavirus pandemic and it has over 10 million active daily users.
Slack revenue in the second quarter of 2020 increased nearly 50 percent to $216 million. This includes 8,000 new paid customers that represent 30 percent growth from the same time in 2019.
In fact, the customer picked up 265 customers paying over $100,000 per year, despite 50 existing clients falling below that threshold due to the layoffs and furloughs caused by the quarantine. These increases helped the company break even on earnings, despite pouring a ton of money into research and development.
Of course, Slack isn’t the only enterprise software on the block, and its success gained the attention of Microsoft.
75 Million Users Choose Microsoft Teams
Microsoft Teams was released in 2017 as part of the Office 365 productive suite. The company began its push towards a cloud-based, software-as-a-service (SaaS) business model in 2011 after Google’s G Suite gained success after its 2006 launch.
G Suite offered a free, web-based competitor to Word (Docs), Excel (Sheets), PowerPoint (Slides), and Microsoft Forms (Google Forms), and it proved successful.
And this is just one market Microsoft operates in. It also has Outlook, Windows, Xbox, the Edge browser, Azure, GitHub, Cortana, Minecraft, SharePoint, Skype, Halo, and more.
It is a true conglomerate built by co-founders Bill Gates and Paul Allen with ruthless efficiency that used original equipment manufacturer (OEM) licensing deals to get its Windows software on workstations around the globe and even in a lot of the equipment floating in space. This reach also gives Microsoft an audience to advertise to even more.
As the coronavirus pandemic ravaged other companies, Microsoft CEO Satya Nadella armed current enterprise and government clients with the tools necessary to succeed in a virtual environment.
Meanwhile, it continues aggressive R&D with energy-efficient underwater servers that could help bulk up its massive cloud infrastructure and even attempted to purchase TikTok after Trump ordered it removed from Chinese control.
Slack Needs New Revenue Channels
The risk of investing in Slack Technologies has already been realized. Its userbase pales in comparison to Microsoft’s, and it doesn’t have the money to pursue sales and bulk up as much as necessary.
If you’re familiar with Pied Piper from HBO’s Silicon Valley, a tech company with one main technology has a long uphill battle ahead of it.
Investors who jump in now could lose a lot of money if Slack can’t pivot to open revenue channels using its existing assets. It also needs to win its antitrust lawsuit against Microsoft.
It proved its point and now needs to pour all resources into scaling at any cost. Anything else will end with this company falling short of early investor expectations.
Dangers of Buying Microsoft
Just because Microsoft is massive doesn’t mean its invincible. It only looks big compared to Slack.
Teams is just one front it’s competing on, and while it’s beating Google in productivity, it lags far behind on other fronts.
Its Series X and Series S consoles are competing with a new PlayStation console, along with the Nintendo Switch and Oculus VR for a contentious 2020 holiday season with no E3 to build hype.
Outlook has only 400 million users compared to Gmail’s 1.5 billion.
Windows also trails Android on installed machines, and Apple’s ecosystem isn’t far behind. The company is also experiencing record high market value, and some analysts believe it may struggle with revenues for the remainder of the year. This could deflate the market cap and leave you at a loss.
Microsoft Vs Slack Stock: The Bottom Line
Microsoft has a long history of either crushing or buying smaller competitors, which helped it become one of few trillion-dollar companies to ever exist. In a post-coronavirus world, it focused on Slack by introducing Teams to its Microsoft 365 SaaS suite.
In doing so, Microsoft immediately nabbed a massive audience of 75 million, causing Slack to file an antitrust lawsuit in Europe.
Should Slack win its lawsuit, investors will benefit from damages. It remains to be seen how the company’s sales team will pick up the slack, so to speak, in the meantime. Worst case scenario, Slack has a possible exit strategy if it can lure a Microsoft-sized competitor to buy it.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.