Slack — the leading workstream collaboration platform for the workplace — is set to become the second unicorn company ever to directly list its shares in the U.S. As its premiere on June 20 approaches, we thought it prudent to examine the competitive landscape this company faces. Slack benefits from a strong following, but must go head to head with multiple technology giants. As a private company, Slack raised $1.2 billion since its founding, and reached a $7.1 billion valuation in its August 2018 Series H primary round, in which preferred shares were issued at $11.91 apiece. Slack, according to founder and CEO Stewart Butterfield, aims to be “a replacement for email,” and has attracted many notable investors along the way, including SoftBank, Accel, Kleiner Perkins, and IVP.
Despite exhibiting healthy growth in user subscriptions and annual recurring revenue, Slack has a lot of work to do to join the ranks of Big Tech. While Slack grew its revenue at a faster rate than long-established rivals such as Facebook and Microsoft over the last fiscal year, it is still dwarfed by these giants’ revenue, as illustrated below.
Interestingly, back in 2017, Amazon valued Slack’s future potential more than double of Slack’s venture capital backers: Amazon was reportedly willing to pay $6,000 per paying Slack user to acquire the company outright — a notable premium over the $2,500 per user VCs had pegged. Two years later, the company has 95,000 paying users, up from the 37,000 it had in January 2017; a robust 156 percent increase.
Slack is focusing on the future by investing heavily in research and development. The unicorn’s R&D spending reached nearly 40 percent of its revenue in the most recent fiscal year. By comparison, Facebook spent 18 percent and Microsoft spent 13 percent on R&D respectively. Amazon did not breakout R&D spending in its most recent 10-K filing. Instead, the e-commerce king lists the measurement “Technology and Content,” which comes out to 12 percent of revenue. Clearly, Slack is deploying significant capital to maintain its competitive edge, but the company will need to closely control its costs if it intends to become profitable.
We will closely monitor Slack’s progress throughout the week, looking to see where its advisors set the reference price and how it performs in its public debut. While the price public markets assign to Slack will be determined over the next few months, what we do know is that this direct listing will be historical.
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