Slack files to go public via direct listing
Messaging company posted roughly $400 million of revenue in latest fiscal year
Slack Technologies Inc. published plans for its unusual initial public offering, detailing financial results of a fast-growing business whose software has supplanted email as the main method of communication for some of its customers.
The California-based workplace-messaging company made its IPO filing with the Securities and Exchange Commission public on Friday. The filing showed that the company’s revenue is growing sharply but that it is still losing significant amounts as it pours money into sales and marketing to drive growth. It posted revenue of $400.6 million in the fiscal year ending January 31, up 82% from the prior year. At the same time, it posted a loss of $140.7 million last fiscal year, compared with a loss of $140.1 million the prior year.
Slack’s listing comes as a wave of startups is hitting public markets, looking to capitalize on record-high stock prices to buoy their shares. Results have been mixed. Online image board Pinterest Inc.’s shares have increased 52% since its IPO last week while videoconferencing software company Zoom Video Communications Inc.’s shares have risen 81% since Zoom’s own IPO the same day. On the negative side of the ledger is ride-hailing company Lyft Inc., whose shares have slid 22% since its late-March IPO.
A standard IPO timeline suggests Slack shares could begin trading publicly in roughly four weeks. Its shares will be listed on the New York Stock Exchange under the ticker symbol SK. Slack is expected to go public with a valuation exceeding the roughly $7 billion at which it was last valued in a fundraising round.
Unlike a traditional IPO, the company won’t sell new shares to investors as part of the offering. Instead, Slack will offer its shares in a process known as a direct listing, where the company simply floats its existing shares and lets the market determine the price without investment banks serving as underwriters to set pricing, allocate shares to investors and backstop trading, all of which are typical in a regular IPO.
Music-streaming service Spotify Technology SA went public through a direct listing in April 2018. Its shares ended their first trading day at $149.01. On Thursday, they closed at $132.82. Slack’s filing shows why the company didn’t need to raise fresh capital as part of the offering. It burned through $97 million of cash last fiscal year, but has over $841 million of cash and investments on its balance sheet. Net losses have been greater than the amount of cash the company actually burns through because of upfront payments it receives for selling its software. These land in the company’s bank account but can’t be recognized as revenue right away.
Launched in 2009 as a gaming company called Tiny Speck, Slack later threw out its original business model, instead focusing on the messaging software it had developed for internal use. The software was a quick hit among workers who prefer more immediate, instant-messaging communication over traditional email. The company benefited as workers downloaded the software individually for smaller teams, prompting some companies to adopt the software on a wider scale.
The company boasted 88,000 paid customers last fiscal year, up from 59,000 the prior year. Larger customers that pay the company at least $100,000 a year numbered 575 last year, up from 298 the prior year.
The company charges smaller customers between $6 and $13 a month per active user for versions of its software with more features, according to its website. It doesn’t disclose pricing for larger customers who can negotiate special rates.
Business software has been a lucrative path to IPO riches in recent years. The shares of such companies that have gone public since 2016 had risen a median 126% from their offer prices through last Tuesday, according to a Wall Street Journal analysis of Dealogic data. That compares with a median increase of 15% for consumer-tech IPOs over the same period.
The trend continued late last week as little-known Zoom’s shares soared 72% from their offer price on their first day of trading, at the time giving the company a higher market capitalization than better-known Pinterest, whose own shares rose 28% on their first day.
By structuring its IPO as a direct listing, Slack will save tens of millions of dollars that bankers typically charge companies to run a traditional IPO.
Similar to Spotify, Slack said in its filing that its advisers won’t build a book of investors or set an IPO price. Morgan Stanley will play a lead role consulting with market makers to set the opening public price, which will be determined by buy and sell orders from investors. The firm played a similar role in Spotify’s direct listing.
As with many tech companies going public in recent years, Slack will have a dual-class voting structure. But unlike others, the dual-class structure comes with an expiration date. According to the filing, supervoting shares will eventually convert to regular shares, though the filing doesn’t say when.
Co-founders Stewart Butterfield and Cal Henderson hold a smaller percentage of shares than is typical for some tech startups going public. Mr. Butterfield, the company’s chief executive, holds 8.6% and Mr. Henderson, the chief technology officer, holds 3.4%, per the filing.
Three venture-capital firms that were early investors stand to reap large gains. Accel Partners was able to retain a significant ownership stake of 24% by investing in multiple Slack fundraisings. If Slack is able to match the market value of Zoom—an enterprise-software company with a similar level of revenue— when it trades, Accel’s stake could surpass $4 billion, ranking it among the most successful venture investments in recent years.