Slack Technologies Inc. beat expectations today with its fiscal second-quarter results, but its stock lost almost 20% of its value in after-hours trading as revenue growth failed to impress Wall Street.

The company reported breakeven earnings before certain costs such as stock compensation on revenue of $215.9 million, up 49% from a year ago. That was better than expected, with Wall Street having forecast a loss of 3 cents per share on revenue of just $209.1 million.

Slack’s net loss of $73 million did at least show good progress in its path to profitability, comparing well to the $360 million net loss in the same period a year ago.

But the company’s revenue growth was a disappointment for investors. What with the recent performance of video-calling software company Zoom Video Communications Inc., which showed 355% growth last week, they were clearly hoping for something better. Slack’s stock promptly fell by almost 19% in after-hours trading.

In a call with analysts, Slack Chief Executive Stewart Butterfield (pictured) said the company had faced a number of challenges since the start of the coronavirus pandemic. He said that although Slack is designed to facilitate remote working, a lot of companies are relying on faster fixes to solve their immediate challenges.

The CEO pointed what he called “macro-related headwinds” with the company’s installed base.

“We price on a per-seat basis. And when our customers downsize, freeze hiring or hire more slowly, net dollar retention is negatively impacted,” Butterfield said. “That impact is direct. And because of our fair billing policies and the substantial number of smaller customers on monthly plans, it shows up much more quickly than it would for others in our industry.”

On the enterprise side, he added, “there was also more budget scrutiny, especially from new categories with longer adoption curves. Even when leaders understand the deep impact that Slack can have for them, the urgency at the moment favors short-term solutions to solve immediate problems. CIOs have a lot on their plates right now.”

Slack once again chose not to disclose its number of daily active users. Instead, Butterfield stressed that what matters is paying customers, and he revealed the company now has more than 130,000, up 30% from a year ago. Of those, 985 bring in annual recurring revenue of more than $100,000.

Slack also provided an update on Slack Connect, which is a new product launched in June that lets customers collaborate on a shared channel across boundaries. The company said Connect ended the quarter with 52,000 paid customers and more than 380,000 connected endpoints.

Analyst Holger Mueller of Constellation Research Inc. told SiliconANGLE that Slack had performed well despite the after-hours selloff, noting that revenue growth of 50% plus is never a bad thing and shows that it’s definitely doing something right.

“On the negative side, one would have expected Slack to do better when compared to the growth of competitors in the field,” Mueller said. “Most likely Slack is running into problems with the license agreement and bundling strategies of enterprises, which need to license fast, deep and wide in order to give their people the tools they need to succeed in pandemic times.”

Even so, Slack saw these problems coming as it slashed its operating expenses across the board during the quarter, Mueller said. But he warned that could cause the company more problems down the line.

“Reducing R&D spend by over $120 million, down to 45% of 2019 levels, is probably not the best strategy for a smaller company that competes with industry titans like Google and Microsoft and fast-rising Zoom,” Mueller said. “While the move towards profitability is laudable and impressive, Slack needs to out-innovate its much larger competitors.”

Charles King of Pund-IT Inc. told SiliconANGLE that Slack’s after-hour stock drop could be related to a much broader selloff of tech stocks in U.S. markets this week.

“Like other vendors that are helping their customers negotiate life and business during the time of COVID-19, Slack is seeing greater demand for its solutions and services among both existing and prospective clients,” King said. “The larger question is whether the company will be able to maintain this level of growth as the pandemic subsides.”

Slack acquired a business directory startup called Rimeto Inc. during the quarter, which works by integrating information across a company to deliver rich profiles of every employee. Slack intends to integrate that capability into its own platform.

As for guidance, Slack said it’s expecting a third-quarter loss of 5 to 6 cents per share on revenue of between $222 million and $225 million. That’s more or less in line with Wall Street’s forecast of a 5 cent per share loss on revenue of $223.7 million.

Slack’s full-year guidance was slightly better, with the company forecasting a loss of 13 to 14 cents a share on revenue of $870 million to $876 million. Analysts have the company down for a full-year loss of 16 cents per share on $872 million in revenue.

Photo: Steve Taureen/Flickr