Slack: The Next Test for Direct Listings
June 7, 2019 | Blog

Slack: The Next Test for Direct Listings

Slack Technologies, the workplace messaging and collaboration platform, will be making its public market debut on June 20, 2019. This liquidity event will be different than the blockbuster IPOs of 2019 to date, as the company is pursuing a direct listing in lieu of a traditional Initial Public Offering. While Spotify, the Swedish music-streaming company, was broadly successful in its direct listing last year, there are still significant risks in pursuing that route. Characteristics for a direct listing include:

Characteristics of a Direct Listing

As a private company, Slack has raised over $1.3 billion in primary funding from investors including SoftBank Group, Accel Partners, Andreessen Horowitz, and Kleiner Perkins. In fact, Slack will be the first enterprise software company exit for SoftBank’s Vision Fund. One factor that could impact the reference price the financial advisors set the day before its listing may be the recent pricing trends in secondary markets. According to the data presented in its S-1 filing, recent secondary trades in Slack have valued the company at nearly $12 billion – an over 70% increase to its last primary funding round in August 2018 which valued the company at just over $7 billion. While there are, of course, a plethora of factors that will likely drive the company’s share price once it starts trading, it appears secondary market participants have seen increasing value in what the company has to offer.

Slack’s Disclosed Secondaries Trading

As a first mover in a budding industry, Slack benefits significantly from a strong position in what could become a large market. However, as the company continues to grow, we would monitor both its ability to capture large enterprise customers to fuel growth from existing competitors, as well as new entrants, which could substantially impact the company’s profitability and growth prospects.

Investment Thesis

Positives:
  • Revenue Growth: Company has strong revenue growth of nearly 100% year-over-year since fiscal year 2017 and a net retention rate of 143% in the last fiscal year
  • Strong Market Position: Workstream Collaboration (“WSC”) is a new market in which Slack was one of the first offerings. Already has a broad range of loyal customers.
  • Disruptive Potential: Slack’s ultimate goal is to provide an alternative to the inherently inefficient existing business communication software alternatives, suggesting a large potential addressable market.
Risks:
  • History of Losses: The company is yet to generate profits. Despite shrinking losses, profits may still be a number of years away.
  • Crowded Landscape: The company faces significant and increasing competition from both large enterprises and smaller players offering competing products.
  • Small Proportion of Paying Customers: Only 14% of organizations they serve are paying customers – the company will need to find ways to convert those free customers to paying customers.
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Securities referenced in this article may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

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Copyright SharesPost, Inc. 2020. All rights reserved.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

This article does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

Securities referenced in this article may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2020. All rights reserved.