Shares in workplace software phenom Slack soar 50% in first day of trading
- The price of shares in the workplace software company Slack Technologies surged nearly 50% to close at $38.62 after the company's debut Thursday on the New York Stock Exchange under the ticker symbol "WORK."
- The jump in share prices gave the San Francisco-based startup a market valuation of about $19.5 billion.
- While Slack is growing, it has yet to turn a profit, losing $138 million last year on revenue of $400 million.
- About three-quarters of U.S. companies with more than 10,000 employees reportedly use Slack.
Shares of the buzzy workplace software company Slack Technologies started trading publicly for the first time Thursday and their price immediately surged nearly 50% to $38.50. The money-losing startup had a stock market valuation of about $19.5 billion in its first moments as a public company. Shares closed Thursday at $38.62.
Slack's workplace software has developed a cult following in its five years of existence — "I'll slack you" is a common phrase today in certain types of workplaces — and many are betting that it will become the dominant form of workplace collaboration.
But Slack has nearly as many detractors as it does fans and now faces competition from deep-pocketed tech giants like Microsoft and Facebook.
Going direct to the NYSE
Slack shares started trading around noon Thursday on the New York Stock Exchange under the ticker symbol "WORK." While Slack has yet to turn a profit, its balance sheet is strong enough that the company chose to list its shares directly on the New York Stock Exchange rather than pursue a traditional initial public offering.
A direct listing bypasses many of the steps in a traditional initial public offering, including securing commitments from investment banks, attracting potential investors through a "roadshow" and pricing the shares before they start trading. It also doesn't raise new funds for a company, making it only really viable for companies with plenty of cash on hand. Slack is only the second sizeable company to pursue a direct listing, following in the footsteps of Spotify last summer.
A direct listing "is viewed as a little bit riskier or more uncertain for a number of reasons, principally because you haven't had this roadshow process, so it's a bit harder to tell where the shares are going to open and at what price," said Adam Augusiak-Boro, a senior research associate at EquityZen.
What is Slack? What does it do?
At its core, Slack's software provides chat rooms divided into channels according to departments, projects or topics. Founder and CEO Stewart Butterfield has called it "a brand-new category of software," and often talks about using it to replace email. "Like email (or the Internet or electricity), Slack has very general and broad applicability. It is not aimed at any one specific purpose, but nearly anything that people do together at work," the company said in securities filings.
Slack is superior to email, the argument goes, because conversations within it allow for many participants and are public within a company, creating a permanent record of projects, processes or meetings. That makes it particularly useful for companies with a scattered workforce or particularly large companies. About three-quarters of companies with more than 10,000 employees use Slack, Marketplace reported recently.
"Slack has the potential to become one of the most significant enterprise software companies globally, reshaping how white-collar workers collaborate," GP Bullhound said in a report.
Choosing revenue growth over profit
Slack has been growing rapidly, taking in $400 million in revenue last year for a net loss of $138 million. It's one of the fastest-growing companies that has ever existed in the subscription-software space, according to technology analyst GP Bullhound. The company has about 95,000 paying customers today with many more free users.
Its success has attracted aggressive competition from Microsoft and Facebook, which could challenge Slack's dominance going forward. Microsoft Teams became a standalone product last year, while Workspace at Facebook has snagged some large clients, like Booking.com and Nestle.
A new billionaire is minted (on paper, at least)
Butterfield, 46, owns 8.4% of the company, so Thursday's share price would value his stake at around $1.5 billion. He started Slack after selling an earlier startup called Flickr to Yahoo for more than $20 million in 2005.
Fortune recently wrote of him: "Butterfield ... has come a long way from the log cabin where he lived without electricity and running water for the first few years of his life. He was introduced to computers in the second grade but lost interest in the technology as he got older and went on to study philosophy in college. 'By the time I finished my master's degree I really had no idea of what I was going to do except for be an academic because, you know, the big five philosophy firms aren't always hiring,' Butterfield told Bloomberg last year."
Other major early owners in Slack who presumably sold at least some of their shares directly to the public Thursday include the venture capital firms Accel, with a 23.8% stake worth about $4.6 billion at the $38.62 price, and Andreesen Horowtiz, with a 13% stake worth nearly $2.6 billion.