Workplace collaboration and messaging company Slack Technologies is in the home stretch of its plans to go public. The company will begin trading on the New York Stock Exchange on Thursday, using the ticker symbol WORK (though it originally planned to use the ticker SK).
Slack has provided a host of information in the run-up to its debut. With the countdown clock ticking, let's review the company's recent financial results and recap some of the most important details in advance of its first day of trading.
1. Not an IPO, a DPO
Slack has chosen the nontraditional route to the public markets, opting for the direct listing or direct public offering (DPO) versus the much more common initial public offering (IPO). While either process results in shares of a company being offered to the public, the path to get there differs.
With an IPO, a company hires investment banks to value the company and management embarks on a series of financial presentations made to institutional investors designed to drum up demand for the stock in advance of its listing. By offering shares to the investing public, a company can raise funds that will help finance the next stage of its growth.
By choosing the alternative DPO, a company is willing to forgo much of that process, and typically doesn't need to raise capital. Since investment banks typically charge millions for their services, a company can realize substantial savings by choosing the more low-profile listing method.
2. Revenue is climbing, but so are losses
Last week Slack released the results for its fiscal 2020 first quarter (which ended April 30), and the results were impressive. Revenue grew to $134.8 million, up 67% year over year. GAAP operating losses were $38.4 million or 28% of total revenue, compared to a loss of $26.3 million or 33% of revenue in the prior-year quarter. This resulted in a net loss of $31.8 million, about 28% worse than the $24.9 million loss in the year-ago quarter.
To put the results into context, Slack generated revenue of $400.6 million in fiscal 2019, up 82% year over year, down slightly from the 110% growth it produced in 2018. Slack produced a net loss of $138.9 million in fiscal 2019, slightly better than the loss of $139.3 to end fiscal 2018.
Slack provided its forecast for the upcoming quarter and the full fiscal year. For the second quarter, management expects revenue of about $140 million at the midpoint of its guidance, representing growth of about 52% year over year. The company is also anticipating an adjusted loss of about $76 million. For fiscal 2020, Slack is projecting revenue of about $595 million, up about 48.5%, and operating losses of $187 million, both at the midpoint of its guidance.
3. Operational metrics are improving
Slack ended the quarter with 95,000 paying customers, up 42% year over year, while the number of paid customers worth $100,000 or more in recurring revenue topped 645, up 84%. Existing customers continue to adopt a growing number of Slack's products and services -- the company's net dollar retention rate was 138%, though that's down from the 149% growth in the prior-year quarter.
Calculated billings, which includes the impact of deferred revenue, grew to $149.6 million, up 47% year over year.
4. Its valuation is difficult to pin down
One of the benefits of the traditional IPO process is the valuation services provided by the investment banks. In a DPO, there is no such process, so determining the value of the company is left to the market to decide once the stock begins trading.
In its most recent funding round, Slack was valued at $7.1 billion, but private transactions in recent months suggest investors could value the company at as much as $16 billion to $17 billion when it begins trading on Thursday, according to a report by Bloomberg.
5. Dual-class shares
Slack CEO Stewart Butterfield and other insiders will retain significant control of the company due to the dual-class share structure the company has in place. The Class A shares will have just one vote per share, compared to the 10 votes per share for the Class B shares held by insiders.
Butterfield controlled nearly 18% of the voting rights of the company as of April 30, while the combination of Butterfield, the company directors, and other execs will maintain as much as 52.4% of the total voting power (including as-yet-unexercised stock options).