• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Slack Marches to the Beat of a Different Drum in Unicorn Parade

Will Slack help set a new trend for IPO strategy among red-hot technology companies?
By KEVIN CURRAN Jun 20, 2019 | 08:49 AM EDT
Stocks quotes in this article: ZM, WORK, SPOT, CHWY, LYFT, MSFT

Slack Technologies Inc. is generating excitement as it prepares to hit the New York Stock Exchange (NYSE) on Thursday under the ticker (WORK) .

However, Slack's rare strategy of direct listing rather than a traditional initial public offering could make its IPO day quite different from similar technology stocks such as Zoom Video Communications Inc.  (ZM) that saw shares surge in a traditional IPO process.

In its prospectus, the San Francisco-based company indicated it will pursue a direct listing, ala Spotify Technology  (SPOT) , for its class A common stock.

"Unlike an initial public offering, the resale by the Registered Stockholders is not being underwritten by any investment bank," the company prospectus explains. "The Registered Stockholders may, or may not, elect to sell their shares of Class A common stock covered by this prospectus, as and to the extent they may determine."

The listing technique allows investors to sell shares without a lockup period and also prevents dilution by selling shares to underwriters on the deal.

Jane Leung, chief investment officer at Scenic Advisement, a private bank for the private markets, told Real Money this strategy could signal a paradigm shift in public market offerings for major tech companies.

"While this is only the second direct listing (following Spotify), this is a sign that technology companies are increasingly looking to IPO on their terms: retaining more control over the process, not looking to raise money, and ditching the IPO bankers and their fees in the process," Leung said. "For a company like Slack, it makes total sense to go public in this way. They fall into the right category, they're a household name and have raised a lot of money."

Leung acknowledged there is the issue of the initial raising of capital on IPO day to ensure liquidity. However, the availability of capital to household tech names through numerous means makes it a smaller issue in her view.

"The total value of private market investment surged 57.8% in 2018, the tenth consecutive year in which private share sales were worth more than those in public markets," Leung said. "This trend is continuing throughout 2019, with venture investment flows far outpacing public-market fundraising."

Essentially, if raising capital was the aim, staying private would have been a safe bet.

Vetting the Valuation

Before any discussion on listing techniques, investors will need to know what their getting.

As with many new names on exchanges this year, Slack is a red-hot technology name that is getting a massive valuation despite a lack of profits.

According to The Wall Street Journal, Slack is set to fetch a $15.7 billion valuation on its first day, kicking off trading at $26 per share.

Considering its household name status, rapid revenue and user base growth, and precedent of partnered company Zoom Video, Slack shares are expected to pop on the open through this more democratized strategy.

Yet, the valuation level is over twice what was expected in private markets, begging the question as to whether the company is coming in too hot despite rapid revenue and user growth in recent years alongside smaller relative losses.

"For all the good things that can be said about Slack's top-line growth, the quality of its collaboration tools and the strength of its app and services ecosystem -- and I've said a few such things myself -- such a valuation should give investors pause, particularly in light of Slack's cash burn and intensifying competition from Microsoft (MSFT) ," Real Money contributor Eric Jhonsa warned.

In addition, with no profits yet reached at Slack, the sustainability of such a lofty valuation is a key question for prospective buyers on the day.

"There has been a huge focus on user growth in the tech IPO market, but today's investors are asking more questions about underlying sustainability and value," Amir Salihefendic, CEO of European Slack competitor Doist, told Real Money. "For example, Uber and Lyft are incredible growth stories, but there are major concerns about their path to profitability and the economic foundations of their business model... Investors have to weigh the incredible growth story in context of these other considerations."

Dual Share Deal

In another important note, investors need to be wary of the dual class share structure at Slack that has been the subject of scrutiny for IPO peers such Lyft Inc.  (LYFT) and Chewy Inc.  (CHWY) .

"Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock," the company's prospectus states. "As of April 30, 2019, the holders of our outstanding Class B common stock held approximately 99.9% of the voting power of our outstanding capital stock, with our directors and executive officers and their affiliates holding approximately 65.6%."

Investors and academics have criticized this structure extensively on business grounds, which could temper institutional buy-in and action among more governance-focused investors.

To read the full prospectus before trading begins under the new ticker WORK, click here.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: IPOs | Regulation | Investment Banking | Investing | Stocks | Software & Services | Technology | Telecommunications | Real Money | Analyst Actions | Stock of the Day

More from Stocks

Market's Narrow and Dull but Not Bad

James "Rev Shark" DePorre
Mar 29, 2023 4:26 PM EDT

Here are the two things that stood out in Wednesday's trading.

Battery Maker Enovix Could Soon Be Charged Up to Rally Further

Bruce Kamich
Mar 29, 2023 2:56 PM EDT

The stock has been impressive but gains from here may be harder to achieve.

Except for Energy, I'd Be Wary of Cyclical Stocks

Bret Jensen
Mar 29, 2023 11:30 AM EDT

Another increasing concern for equities is that we are likely to see an 'earnings recession'.

Think the Market Action Is Dull Now? Just Wait for the Storm

James "Rev Shark" DePorre
Mar 29, 2023 11:15 AM EDT

Until we have a better feel for what the Fed will do, it will be hard for the market to discount what lies ahead.

Micron Stock Shows Resilience After an 'Ugly' Quarter, But Is It a Buy?

Stephen Guilfoyle
Mar 29, 2023 10:20 AM EDT

This is a tough stock or sector (memory) of the industry to love right now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • 08:58 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How to Adjust Your Trading Style as Market Conditi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login