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Slack (NYSE:WORK) – the instant messaging platform geared toward workplaces – appears to be flourishing amid the ongoing coronavirus (COVID-19) pandemic and the attendant need for social distancing which, in turn, has given impetus to remote working. It seems that Slack is now attempting to cash in its newfound popularity by trying to raise at least $600 million through convertible notes.
As per the company’s press release, the convertible notes will mature in 2025 and the initial purchasers of the private offering will be granted the right to purchase additional convertible notes – to the tune of $90 million.
Slack has not finalized the terms of the offering – including the initial conversion rate, interest rate, etc. – as yet but was able to disclose in the press release that the notes “will bear interest semi-annually in arrears and will mature on April 15, 2025”. Moreover, the company elaborated that, subject to certain conditions, the notes will be convertible into cash, equity – Slack’s Class A common shares – or a combination of the two at pre-determined intervals before maturity.
Although Slack did not disclose a specific use for the fresh funding, it did provide the following qualifier:
“Slack intends to use the remaining net proceeds from the offering of notes for working capital and other general corporate purposes, which may include potential acquisitions and strategic transactions. From time to time, Slack evaluates potential acquisitions and strategic transactions of businesses, technologies or products. However, Slack has not designated any specific uses and has no current agreements with respect to any material acquisition or strategic transaction.”
As mentioned earlier, the company is experiencing substantial growth as the work-from-home trend has accelerated amid the pandemic. Slack’s CEO Stewart Butterfield provided key snippets of information toward the end of March. According to the company’s CEO, Slack was able to add around 7,000 new subscribers halfway through the Q1 2020. However, as of the 24th of March 2020, the platform had secured 2,000 additional subscribers, bringing the total to around 9,000 for the applicable quarter. Moreover, around the mid of March, Slack hit a record 10.4 million simultaneously connected users. But, as of the 23rd of March 2020, that metric had swelled to 12.5 million – a growth of over 20 percent in around 10 days!
In recognition of this explosive growth, RBC recently raised the price target for Slack’s stock from $23 to $28, citing "greater demand, usage and validation for its product portfolio" due to the coronavirus-related remote work shift. Although Slack’s CEO does not believe that this level of growth is sustainable, RBC’s analyst Alex Zukin opined that the platform’s "lower selling friction is real" now that more companies and users have tried the product. In other words, Slack would continue to generate growth as more and more users get the opportunity to try its products.
In the light of this development, Slack’s stock is up 2.23 percent today to $24.80 (as of 10:43 a.m. ET). Year to date, the stock has gained 7.92 percent even as the broader S&P 500 index tumbled by 19.51 percent during the same timeframe.