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The much-anticipated listing of Slack Technologies will begin trading in the New York Stock Exchange today. The reference prices for this unconventional direct listing are $26 per share giving the company an approximate market valuation of $15.7 billion. Interestingly, the business-oriented collaboration platform is not going public via the traditional route. No overpaid investment bankers or flashy road show to line up institutional investors. Last year, Spotify (SPOT) was the first major company to list public shares without a capital raise or the support of underwriters. Under the Ticker symbol “WORK”, Slack will sell shares directly to the public (Spotify’s first day of trading was a huge success). Given Wall Street’s weak record of accomplishment in pricing offerings recently, avoiding a pricey and time wasting process seems like a good idea. That said, Slack has brought on Goldman Sachs, Morgan Stanley and Allen & Co. as primary financial advisors for the deal.
Investors should expect a higher volatility level than on traditional IPOs and as underwriters often support price . A benefit for existing shareholders and the massive potential of market chaos is that this direct listing has removed the lock-up period required in a typical IPO. This means that the company insiders and other shareholders can sell their shares. Existing investors can immediately convert stocks into cash. The benefit is less dilutive for Slack since less share is being issued, but it could lead to market disorder.
As with most tech companies showing no profit has not damaged potential valuations just yet. Past unicorns UBER and LYFT have reached lofty valuation despite a lack of profits. While net losses have been marginally decreasing, Slack reported a net loss of $138.9 million in its last fiscal year but revenues did surge 82% in the same period. While big losses are nothing new for a new Silicon Valley tech firm, slowing sales growth should be a concern. Also, Slack has benefited from dominating a new space, but competitors such as Microsoft are moving into the business line.
Despite elevated equity valuations and concerns about weakening global demand, in our view the timing is good. Past enterprise companies such as Zoom, CrowdStrike and Pagerduty all received solid valuations while Slack will further benefit from significantly higher brand recognition. Investor risk appetite has increased with the FOMC signaling a dovish bias. With established tech names already expensive, investors are more willing to roll the dice on an exciting new opportunity.