One of the hottest tech IPOs of the year is happening soon at our doorstep on June 20th. With big tech names like Zoom and Spotify taking center stage already this year, Slack is joining soon as well.
Slack Technologies Inc. is expected to be valued by investors to be around $16 to $17 Billion Dollars when it lists publicly on the New York Stock Exchange this week under the name SK.
Here’s what you need to know about it:
What Is Slack?
There is a very high possibility that you’ve heard of Slack and even used it. You may not know that it actually stands for which is: “Searchable Log of All Conversation and Knowledge”.
Slack began as an internal tool used by the company, Tiny Speck, in the development of Glitch, a now-defunct online game. The founders created Slack because they were frustrated with email. So they reimagined the experience, with a focus on team-based channels rather than email inboxes.
Although the game closed, they knew they had something bigger in their hands with this new collaboration tool.
In case you don’t actually know what they do at all, here’s a great summary from their own website:
Slack is a collaboration hub where you and your team can work together to get things done. From project kickoffs to budget discussions, and to everything in between — Slack has you covered.
To put it simply, imagine an instant messaging service where you can collaborate and share with fellow employees (it’s much more than this though!)
Unlike standard offerings, Slack is bypassing the big banks and going for what is called a direct public offering (DPO).
What Is a Direct Public Offering (DPO)?
According to Investopedia: A direct public offering (DPO) is a type of offering in which a company offers its securities directly to the public to raise capital.
With the conventional IPO model, companies use an investment bank (think of your JP Morgans and Goldman Sachs) or their own syndicate to underwrite their offering.
The underwriter will gather interest from banks, institutional investors, mutual funds and then the underwriter will decide the offer price based on the financial data and the amount of interest gathered by the institutions.
By going through a DPO, it removes the middlemen (investment banks, brokers, underwriters, etc.) and instead self underwrites its securities.
As you can see from the above, this eliminates a lot of costs which substantially lowers how much you need to spend to go public.
This is normally a route smaller companies go for but Slack is following Spotify’s footsteps by going this route. It also means the company must have a huge interest already and loyal followers (which it certainly does!)
This also means they are not doing a capital raise.
With about $841 million dollars in the bank, Slack is showing they are confident that they do not need any extra cash at this stage.
What are the key financial facts of Slack?
There are many facts floating around right now and plenty of data to look at if you had the time. To summarize, I picked out some key ones that look at Slack’s financial history at recent:
- Revenue of $400.6 million in the fiscal year ending Jan. 31, 2019
- Revenue up by 82% from prior fiscal year
- Lost $140.7 million in its latest fiscal year, versus $140.1 million in the prior year
- Cash burn rate in the latest fiscal year was $97 million
- Cash, cash equivalents, and marketable securities: $841.1 million
- Daily active users exceed 10 million with 88,000 of them paid customers
- Used by over 600,000 organizations with three or more employees
Although Slack is making and growing its revenue, it is still losing money. One of the most important things to note is that Slack has a huge free userbase which they are confident in converting into paying customers in the future.
As mentioned, Slack follows several tech companies that have already debuted on the public market in 2019.
Slack has incredible growth rates, with its fiscal 2017 to 2019, revenues jumping from $105.2 million to $400.6 million.
It’s interesting to see Slack going for an IPO even though it is still burning through cash. However at the current rate, it’s going at, it is still relatively safe from completely exhausting their pile.
Through this DPO, it means investors such as Accel Partners (24%) and Andreessen Horowitz (13.3%) can cash in on their investments as well.
It will be important to see how Slack will be at the end of this year after the IPO settles.