UPDATED 20:01 EDT / JUNE 04 2020

CLOUD

Slack announces multiyear cloud partnership with AWS

Slack Technologies Inc. today announced today a sweeping multiyear agreement with Amazon Web Services Inc. that covers both cloud services and product integrations.

The announcement came as the workplace collaboration firm reported its fiscal first-quarter results, easily topping Wall Street’s expectations. The company’s stock quickly fell after hours, though, as its guidance for the next quarter wasn’t nearly enough to impress investors.

There are a number of important aspects to the partnership with AWS, which was announced after Slack posted its financial results. As part of the agreement, Slack said it intends to migrate the Slack Calls capability that powers its voice and video call features to Amazon Chime, which is Amazon’s video conferencing tool. The companies said Chime’s software development kit will be used to power audio, video and screen sharing natively within Slack.

The AWS Chatbot service will also be integrated with Slack, enabling enterprises users to create virtual agents to keep development teams updated. And there’s a new Amazon AppFlow integration for Slack that will enable users to securely transfer files and other data between Slack and AWS services such as Amazon S3.

In addition, Slack said it will maintain AWS as its preferred cloud provider and continue to use a range of its services, while AWS has promised to adopt Slack for its own teams’ communication. Meanwhile, Slack users will also get better protection, as it plans to use the AWS Key Management Service to power its own Enterprise Key Management and distribute and control cryptographic security keys.

The partnership should benefit Slack on the technical side, since it needs both synchronous communication and a reliable cloud infrastructure provider, Constellation Research Inc. analyst Holger Mueller told SiliconANGLE.

“As for AWS, getting organic load from a committed software vendor like Slack means more workload, and with that better economies of scale, which nurture the cloud flywheel,” Mueller said. “The partnership is also a major component win for the AWS Chime team, even though some may have had hopes and plans to imitate Slack’s success natively in Chime. For executives selecting collaboration software this makes their decision much easier if they use Slack and are on AWS for the majority of their automation.”

The partnership also makes sense from a purely business perspective. With it, Slack gets a way to keep a potentially strong rival in the collaboration market at bay, which makes sense given that both companies seem to have a mutual enemy in Microsoft Corp. and its Teams and Azure cloud platforms.

“Becoming the team communication platform of choice for the market’s strongest public cloud player is clearly beneficial for Slack, and the close integration between the company’s solutions and AWS platform technologies should simplify efforts to grow its presence in new markets,” said Pund-IT Inc. analyst Charles King. “At the same time, Slack’s relationships with enterprise customers should also benefit AWS’ efforts to build a bigger role for itself in those organizations. Overall, the arrangement should be positive for both Slack and AWS.”

Slack’s partnership with AWS appears to have been timed to coincide with its first-quarter results, and that may be just as well, as the company’s stock fell more than 14% in after-hours trading, despite what looks like a strong performance.

The company reported a loss before certain costs such as stock compensation of 2 cents per share on revenue of $201.7 million, up 50% from the same period a year ago. That was better than the 6 cents per share loss on $188.12 million in revenue that Wall Street was expecting.

“Q1 was historic in its impact, both for Slack and for the world,” said Slack Chief Executive Stewart Butterfield (pictured). “We believe very strongly the impacts that the COVID crisis will have on the way we work are of generational magnitude and just beginning to be felt. It’s too soon to understand the impact with any precision, but it reinforces our conviction around this business and our long-term trajectory.”

Mueller told SilionANGLE that Slack’s financial results have put the company on track to become a $1 billion-plus “unicorn” company by next year, as its platform helps company employees communicate and collaborate more efficiently.

The reasons for Slack’s after-hours stock drop aren’t immediately clear, but one theory is that investors were hoping for much stronger guidance for the next quarter. The company said it’s expecting a second-quarter loss of between three and four cents a share on revenue of $206 million to $209 million. Wall Street had earlier forecast a loss of 6 cents a share on revenue of $199.8 million.

Strong guidance is always good, but Slack’s rival Zoom last week projected earnings and revenue that were double Wall Street’s expectations. If investors were hoping for a similar story for Slack, they’re no doubt feeling pretty disappointed.

Then again, it could simply be that investors were just cashing out earlier profits, King said, noting that Slack’s stock had risen by almost a third during the past month.

“The 15% drop after the earnings announcement may indicate that investors decided to take profits, rather than signal any fundamental issues with Slack’s business,” King said.

There is one potential cause for concern though: Slack hasn’t issued an updated user count since last October, when it claimed 12 million daily active users. Instead, it has switched focus to reporting on paid and enterprise customers only.

It said it ended the quarter with 122,000 paid customers, up 28% from a year ago. Of those, 963 bring in annual recurring revenue of more than $100,000, the company said. It also added a record 12,000 new paid customers during the quarter.

Altogether, Slack now claims about 750,000 organizations on either a free or paid subscription plan, up from more than 660,000 at the end of last quarter.

That might sound impressive, but it also seems pretty clear that Microsoft Teams is getting even more traction. Just last month, the Redmond-based company announced that Teams now has more than 75 million daily active users.

Photo: Steve Taureen/Flickr

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