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Is Slack Ready to Go Public?

Written by Monica Savaglia
Posted February 12, 2019

It looks like the initial public offering (IPO) market might be finally experiencing the start of its new year.

As you might know, the U.S. government shutdown had delayed the IPO market a bit, but it looks like things might be back in order, or at least getting there.

Since the government reopened, a few biotech companies have made their public debut. Not much to report on those IPOs, since they are still trading below or near their IPO prices. They didn't have the strongest market debuts, but those IPOs have helped recharge the market to make way for those highly anticipated IPOs we were talking about at the end of 2018.

Last week, messaging software company Slack Technologies announced that it will be going public and has confidentially filed to go public. Slack provides a popular messaging platform that’s often used in workplaces to communicate and collaborate in an easier and more efficient way. The company has been rumored to be valued at least at $10 billion, but that valuation could be even higher as of right now.

It has managed to grow very quickly. It has an astounding 8 million daily users. In just four short years, the company has managed to expand its daily users to that figure. And out of those 8 million daily users, 3 million of them are paid users. The company has created software that caught on very quickly in the workplace, and it continues to be the most logical way to communicate with coworkers throughout an office.

In the past, other companies have tried to tackle this market but have failed to do so. In 2012, one of Slack’s competitors, Microsoft, bought Yammer for $1.2 billion in an attempt to snag up this huge share of users, but it didn’t quite catch on, and email was still the go-to form of communication for the workplace.

In 2013, Slack came along with its software that incorporated the cloud and a mobile interface, which were two of the biggest attractions of the software — not to mention the variety of apps that can be downloaded to assist in staying on task and ultimately getting the job done.

Slack has grown in valuation and popularity, which is why it is interested in a direct listing for its market debut rather than the more traditional IPO route.

Why a Direct Listing Could Work for Slack

So what is a direct listing? Basically, a direct listing, also known as direct public offering (DPO), is when the company sells its shares directly to the public with no underwriters involved. With a traditional IPO route, companies hire one or more underwriters, investing banking operations such as Goldman Sachs and J.P. Morgan.

The underwriters have the duties of managing the process of a market debut. They’ll determine the IPO price, deal with regulatory issues, market the IPO/company, and sell shares to investors. Since underwriters are involved with the process so much, they get a good chunk of the IPO proceeds.

With a DPO, the company’s existing shares are listed on the exchange. That means people who own the shares have the option to sell their shares directly on the public markets. When a company DPOs, it isn’t looking to raise new capital. The price of shares is determined by the supply and demand of the shares.

Last year, music streaming company Spotify decided to DPO. The company was well known at the time (and remains so), and it wasn’t looking to earn new capital. Spotify’s DPO went smoothly.

Slack could have the same success Spotify experienced last year with its direct listing. It seems as if the company is confident with its finances and feels that it’s sufficiently popular that it'll have enough public demand for its shares, resulting in a successful direct listing.

A Bright Future Ahead for Slack?

Once the SEC reviews Slack’s paperwork, Slack will be ready to become a publicly traded company. All of this could happen for Slack by early spring.

But of course, that depends on what happens in the U.S. government and if we can expect another shutdown soon, which would continue to slow down the IPO market, including Slack’s direct listing. However, if the SEC has reviewed and given Slack the green light, it could very well proceed with its plan of an early spring direct listing.

Slack has managed to grow its paying customers by over 50% in the past five years. The company has been working hard to become a force to be reckoned with.

According to research firm IDC, the workplace collaboration market will be worth $3.2 billion by 2021. Slack has already achieved a good chunk of this market, while competitors like Microsoft and Alphabet are also trying to grasp a good portion of market share in the industry.

Slack has impressed the market and public already. A direct listing to start selling its shares to investors is the obvious next step. A Slack IPO turned DPO could do wonders for their share price. 

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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