Slack Stock Skyrockets on First Day of Trading
Slack Technologies Inc. stop shot up 50 percent on the first day of trading for the company on the New York Stock Exchange.
Slack Technologies Inc. S-1
Slack (NYSE:WORK) is a communications tool used by workplaces that focuses on the simplicity of the application to increase engagement through a company. The company’s platform is commonly used around the tech community with customers such as: Airbnb, Lyft, Autodesk and Oracle. In their S-1 Slack claims to have 10 million daily active users, operating in 150+ countries, and 600,000+ organizations. These metrics are all very important as they show the scale of the company.
When outlining the risks the company faces, they were very blunt starting with: “We have a limited operating history, which makes it difficult to forecast our revenue and evaluate our business and future prospects.” And “We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve and, if achieved, maintain profitability" source.
Direct Listing vs IPO
Slack’s choice to go public through a direct listing (also known as a direct public offering) instead of an IPO puts them at higher risk, but also means they could get more of the profits from listing, think Spotify (NYSE:SPOT). The key difference between an IPO and Direct Listing is the use of an underwriter who buys the shares before listing and agrees to hold the risk of stock trading below the trading price, but also the reward if the stock rises when they sell. The underwriters (typically large banks), also charge a fee to the company for their underwriting services. The direct listing also allows shareholders to sell their stock on the first day if they desire, whereas with an IPO they must hold for typically six months. For more information on direct listings and Slack’s financial condition, see our piece from April.
Slack’s Stock Pricing
Since it was a direct offering and not an IPO the price was set by the exchange listing the stock based on previous performance, NYSE set a reference price of $26, however the market opened at $38.50 for the stock and as of writing have settled around $42, which put the stock up 50% on the day from reference price. Since the stock was a direct listing of Slack employees and owners enjoy the profits from the stock rise and are free to sell their shares on the market without any waiting period. Though employees and owners typically wait to see if the stock will rise again and want to hold their stock in good faith to the company.
We have been talking a lot about the global climate, and for the most part, Slack is insulated from tariffs between the United States and China, they move information instead of physical products which would expose them to more risk. It’s also hard to imagine the company needing a lot of computing power for their software as a service platform. As noted in their statement of operations, sales and marketing were the largest expense followed by research and development.