It's official: Slack Technologies is going public. A company blog post confirmed the collaboration and messaging platform provider had confidentially submitted a draft S-1 registration statement to the SEC this week, though it didn't disclose any details about how it plans to sell its shares to the public.
Previously, reports indicated it will be using a direct listing instead of an initial public offering, much the way Spotify (NYSE:SPOT) debuted last year. Whereas an IPO features banks underwriting the offering -- and setting the offering price -- a direct listing circumvents the financial institutions and lets the company, its early backers, and shareholding employees sell shares directly to the public.
With an IPO, insiders are typically precluded from cashing in their own shares for a set period of time -- the lockup period. By contrast, the direct listing process essentially allows the company's stock to begin trading at its current level. There's no pre-selling of stock by insiders to favored investors, and no new shares are issued, so there is no fresh capital being raised, and no proceeds for Slack to receive.
A well-scripted play
Slack doesn't necessarily need money -- it became well-funded via several rounds of private financing, the last of which gave the platform a value in excess of $7 billion. Yet direct listings are viewed as somewhat riskier ventures than IPOs because the initiation process can be messy, exposing the stock's early performance to the hurly-burly of chance.
When a company IPOs, its stock prices often pops as soon as it hits the market, because the debut is a carefully orchestrated event with a lead-up period designed to build investors' anticipation. In a direct listing, institutional investors -- whose long-term ownership is often seen as a stabilizing force when it comes to share prices -- are left to buy their shares on the open market like everyone else. As consequence, many might bypass the opportunity.
Spotify's direct listing debut was viewed as a success, but its shares today trade at about the level it went public at, and following the market's fourth-quarter selloff, they were almost 20% below that level around Christmas.
Still, the direct listing process is a quicker, easier, and cheaper affair since investment banks and their high fees typically get left out of the loop.
A growth story worth following
Although smaller companies might find the direct listing path more perilous than being shepherded through an IPO, Slack shouldn't have any problems. A few days before it made its going-public announcement, the company shared some details about how its collaboration platform had grown over the past year.
Slack now has 10 million daily active users globally, up from 8 million in May, and more than half of them are outside of the U.S. It has in excess of 85,000 organizations paying to using its service, including 65 of the Fortune 100. According to The Information, Slack's revenues are forecast to hit $640 million this year, and it currently has $900 million on its balance sheet. Although Slack didn't disclose how many paying DAUs it had compared to the 3 million it reported a year ago, it's understandable that Slack didn't see the need to issue new shares via an IPO.
Lower risk is not zero risk, however, and despite its growth, Slack isn't exactly a household name in the way Spotify was when it went public, so demand may not be quite as intense for its shares. Of course, an investor shouldn't look at any stock's first-day pop to determine its worth -- it is the underlying soundness of the company and where it is heading that will better determine its value over time. In that respect, Slack Technologies' pursuit of a direct listing could mean its stock is ultimately a safe bet.