Slack (WORK) took a less-traveled path to becoming a public company. It used a direct listing rather than the more traditional initial public offering (IPO). A direct listing isn't about the company raising capital. Instead, it's a way for insiders to cash out without new equity being issued.

That, in theory, removes some of the volatility that has often occurred after an IPO. That might prevent some of the drama that occurred after recent IPOs by Lyft and Uber. In reality, short-term volatility isn't something investors should focus on.

Slack's long-term value will depend on whether it can grow its user base and figure out how to make money. That's something the company has not yet demonstrated.

People work in an office.

Slack has become a default platform for intra-office communication at many companies. Image source: Getty Images.

Where does Slack stand?

In its S-1 filing with the SEC, Slack showed that it has a very large customer base. The company said its communication product is used by more than 10 million people across 600,000 organizations in more than 150 countries. Those users collectively spend more than 50 million hours using Slack in a typical week "on either a free or paid subscription plan."

The free part may be a big issue with future profitability, because the company currently does not make money. Slack's revenue has grown from $105.2 million in 2017 to $220.5 million in 2018 and $400.6 million in 2019. That's great, but the company laid out a pattern of steady losses in its S-1.

"We continue to invest in growing our business to capitalize on our market opportunity," the company wrote. "As a result, we incurred net losses of $146.9 million, $140.1 million, and $138.9 million in fiscal years 2017, 2018, and 2019, respectively. Our net losses have been decreasing as a percentage of revenue over time as revenue growth has outpaced the growth in operating expenses."

Yes, losses have decreased as a percentage of revenue, but the bottom-line number has remained pretty steady. That's something the company could turn around if it makes some changes, according to Smartsheet Chief Product Officer Gene Farrell in an email to The Motley Fool.

"Slack's path to profitability lies in pivoting to become not just a communications tool, but a workplace hub," wrote Farrell, whose company's product has an integration with Slack. "The company has started to make some moves in that direction, but it's a challenge when competing against companies like [Alphabet's] Google and Microsoft that offer a complete suite of workplace tools that include messaging offerings."

It's a changing market

It's fair to say that Slack has changed how people work. It has become a default tool that has lessened email use and made communication easier at the companies that use it. Building on that, however, may not be easy.

"The nature of work is changing and workers have a preference for tools that better support modern collaborative work than traditional productivity apps. This is a huge market opportunity and it will be interesting to see how much of it Slack can capture," Farrell wrote.

Basically, on its own, the current Slack product may not have a path to profitability, or at least it faces a very long slog to get there. To truly make money and offer a good return for investors, Slack needs to be more than it is.

The company has an audience. Its ability to make money, however, may depend on whether it can get that audience to pay for products it has yet to create.