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Slack Direct Listing, Gold Mine Or Money Pit?

Last Updated on June 4, 2019 by Zion Miller

Tech Giant Slack is set to IPO through a direct listing this month. It will be trading under the symbol “SK” and marks the continuation of multi billion dollar valued tech giants going public with significant losses.

In this article I will discuss the following;

  • What Is Slack?
  • Evaluation of Slacks Prospectus
  • Opportunities For Investors
  • Risks
  • Conclusion Including MS Top Picks For 2019

What Is Slack?

Slack is a cloud based set of collaboration tools & services. In essence their portfolio aims to replace email, text, IM and other similar forms of communication in the office. Following the recent tech companies eager to reach public listing, Slack is anticipated to list in June. Their approach is a little less traditional to IPO as they are offering a direct listing. Direct listings allow the company to skip many of the hurdles involved in a more traditional route, explaining financials to the banks etc and conversely don’t issue new shares or seek to raise money through the process. This is done through existing shareholders being able to sell their shares to the public and allows the firm to cut down their cost of listing.

Slacks Prospectus

Source: Google Finance

Although Direct Listings come with some upsides, they also pass a fair share of risk onto the company and investors. Direct listings don’t allow the company to utilize the Greenshoe Option, they do not have guarantee for the share sale, and have little defense by large shareholders to shield against volatility in price around the IPO time. In essence an IPO of this nature is prone to volatility and absent of many protections from insider selling etc that is found in traditional IPOs. Many people point to Spotify’s IPO as a benchmark for Direct Listings. Over a period when the S&P 500 has gained 11%, Spotify is down roughly 18% from their opening price. While this may not be indicative of Slacks early performance on the exchanges, it may provide some insight into the potential headwinds that Slack may face in a measure of stock price.

Although Slack has presented the investment community with many impressive measures, it’s main challenged remains in achieving profitability. Slack is still unable to achieve profitability and will need to address these headwinds to return significant value to shareholders. 2018 saw Slacks value at $7.1 billion soon after a funding round which contributed $427 million to its balance sheet. At the time of the report, Slack had observed roughly $1.26 billion in funding and was seeing 3 million paying users. Earlier this year, the company reported having 10 million daily active users, perhaps increasing their valuation. Part of these 10 million daily active users consists of their developer community which is at 500,000 registered developers who have made over 450,000 third part applications/ custom integrations.

Opportunities & Risks

A further dive into Slacks Prospectus reveals the numbers driving these massive allotments by venture capitalists. The company does however, seem to be facing issues in communicating the value of its offering from a paid vs free subscription. For the three months ended January 31, 2019, Slack saw 500,000 organizations subscribing on a free model and 88,000 on a paid model. 40% of Slacks revenue in fiscal year 2019 was the result of 575 customers with payments exceeding $100,000 in ARR (Annual Recurring Revenue). Slacks revenue has seen substantial growth from $105.2m (2017), $220.5m (2018) & $400.6m (2019). While Slack reports exciting international growth numbers, their investment in expansion has resulted in losses of $146.9m (2017), $140.1m (2018) & $138.9M (2019). A further look reveals an increase in loss from operations on Slacks balance sheet. Slack highlights in its prospectus “Our net losses have been decreasing as a percentage of revenue over time as revenue growth has outpaced the growth in operating expenses.” While many of these measures are reassuring, they seem to invite a fair deal of risk to us as investors. Their revenue is overly reliant and exceeds the 80/20 rule many tech giants pursue. As an investor, I would like to see their revenue maturing to a healthier distribution. In addition to these concerns, the headwinds facing the tech market seem to have no end in a short term measure. With this in mind, it is reasonable to assume prolonged volatility in tech companies into 2019 as the political factors bring down individual equities with a vengeance.

Slack presents risk and opportunity outside of its operations due to their choice in listing method. Due to the nature of direct listings, there will be no guaranteed market. Shares available for sale in this listing will be entirely dependent on whether insiders want to sell or not. If they do wish to sell, the equilibrium between demand and supply will be difficult to achieve. Outside of supply & demand, the price per share is poised to be volatile as volume will be small. With few shares trading and not being supported by a bank, fluctuations in price will likely be significant. This traditionally pushes investors to be more cognizant of technicals & not fundamentals. This approach does provide many traders success, but those equerries (etc) are always supported by strong fundamentals and investors who are aware of these measures. Investors of Slack would be wise to pay attention to and thoroughly read Slacks “key Metrics” section as the discussion around here becomes a little less pretty. There are several appealing measures but these measures are contrasted with and highlight several headwinds and metrics of critical importance to the longevity of Slack. A purely technical perspective on Slack may present a great deal of risk to investors, but opportunity to day traders and short term investors looking for an equity with volatility.

Dual Share Structure

Slacks prospectus reveals another alarming measure to many investors. This is within their dual-share class structure. In essence this allows insiders with one share class to extend their voting power to 10 votes while normal shares only receive one vote. Ultimately this traditionally proves unpopular among investors as power is taken from the investment community and placed on the insiders. Perhaps it could prove beneficial if leadership and insiders are solid, but part of the incentive in investing is having a say in what a company does to protect and grow your investment.

Why Would Insiders Sell?

Why do insiders sell? It’s a valid question in any IPO, but highly relevant in a direct listing. Traditional IPO’s place restrictions on insider selling which provide a great deal of protection to investors. These restrictions are far and few in direct listings as insiders are the only source of share supply to those looking to buy.


Slack has many eyes on them as they IPO. With all the attention, investors are beginning to pay attention to many critical components inherent in their operations and direct listing approach. While this provides both risk and opportunity based on your investment approach, many are looking to Spotify’s performance as a benchmark in the direct listing approach. Slack will certainly prove to be a profitable investment if they can address some of the issues outlined above and in their prospectus, but with current headwinds facing tech and other market conditions, we will be focusing elsewhere. Many clinical stage biotechs and various companies that have reached market are theoretically safe from the wraith of twitter comments on trade. As many of our readers know, we believe ADMA has presented scores of evidence supporting a bullish thesis when viewed in a long term. Current market conditions suggest IPO’s and tech plays to present a great deal of risk while also presenting a great deal of opportunity on entry to small cap bios. To read our argument on why we believe ADMA has presented evidence in favor of this thesis over placing money in Slack, click here.

I have no position in Slack and was not compensated for my writing

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