The initial public offering (IPO) market has seen some real winners in the past few months. And another popular and highly anticipated IPO will be joining those winners. The workplace collaboration and messaging company Slack Technologies will be making its public debut this week on Thursday, June 20.
Slack will begin trading on the New York Stock Exchange with the symbol “WORK.” But it won’t be taking the traditional route with its market debut. Rather than doing the traditional IPO, the company has decided the best decision would be opting for the direct listing or direct public offering (DPO) route.
With an IPO, a company hires investment banks to assist it with determining the company’s valuation. The company undergoes many financial presentations to institutional investors to market and increase the demand for the stock prior to its public debut. This allows for the company to raise funds that could help finance growth.
With a DPO, the company goes through most of the same processes that it does with an IPO, but it doesn’t involve investment banks and it doesn’t need to raise capital when it goes public. Instead, the share prices are determined by the demand of the actual shares that are being sold.
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Not involving investment banks saves companies a lot of money because those banks most often charge millions for their services. A DPO is an ideal route for companies that are already highly valued and when the public and investors are aware of the company, what it does, and how it competes in its industry.
What to Expect for Slack’s DPO
This past week, Slack released the results for its fiscal 2020 first quarter, and some were impressed with what Slack had to offer. Revenue was up 67% year over year, growing to $134.8 million.
For the second quarter, Slack expects revenue of about $140 million, which would be 52% growth from the previous year. For the entire fiscal year of 2020, Slack is forecasting revenue of about $595 million, which would be up 48.5%, and operating losses of $187 million. Both of these expectations would be around the midpoint of its guidance.
Slack ended the quarter with 95,000 paying customers — up 42% year over year. Those paying customers could easily become recurring customers. The company’s net dollar retention rate was 138%.
Slack’s most recent round of funding had valued the company at $7.1 billion. In recent months, investors are suggesting that the company’s value could be much higher — around the $16 billion to $17 billion range. This will help determine Slack’s stock when it hits the market this Thursday.
Slack will have a dual-class share structure, which means Slack’s CEO Stewart Butterfield and other insiders will continue having significant control of the company. The Class A shares will have just one vote per share. The Class B shares will have 10 votes per share, which are the shares held by Slack’s CEO and insiders.
We can predict that when Slack starts trading, it’s going to open high. With rumors about Slack’s valuation being around $16 million to $17 million, that could only mean share prices will be high on Thursday. This isn’t the first time a popular company has decided to DPO instead of IPO. Music streaming company Spotify had a DPO last year, and it has seemed to be successful for that company.
Keep an eye out on Thursday, June 20. This will be an interesting public debut for an already well-known company.
Until next time,
Jennifer Clark
Pro Trader Today