![]() They go from the first stage - Winning the First Customers - to the third - Sprinting to Liquidity. Slack noted "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."Īs I wrote in my latest book, Scaling Your Startup, there are four stages of scaling and many companies going public these days skip the second stage of scaling - Building a Scalable Business Model. Slack lost a whopping $139 million in 2018 and in the first quarter of 2019, its net loss of $38.4 million was 28% of revenue. There is little chance Slack can earn a profit. Indeed, according to the prospectus, more than 600,000 organizations had at least three users- but in the quarter ending April 30, only 95,000 paid for the service - 645 of whom accounted for over $100,000 in recurring annual revenue. Slack has a so-called freemium business model in which only a small number of users pay. ![]() And Slack is guiding investors to expect 2019 growth in the range of 47% to 50%, according to Barron's. In the first quarter of 2019, its revenue rose 67% to $134.8 million, according to its prospectus. While Slack's top line grew 82% to $400.5 million in 2018, it is slowing down. This brings us to the four reasons you should resist your urge to buy Slack stock today. ![]() To put this in perspective, the April 2018 direct listing of Spotify had a reference price of $132 and 14 months later its stock trades about where it closed on its first day, around $149, according to the Journal. This price would value Slack at $15.7 billion, 120% above the $7.1 billion at which Slack was valued in 2018 the last time it raised private capital, according to the Journal. Meanwhile, the reference price - a guidepost for where the shares might begin trading - is $26. This boosts the odds that there will not be enough buyers - creating what the Wall Street Journal called a "death knell." Unlike an IPO which limits the number of shares being sold initially, a direct listing does not restrict how many shares can be sold. Shares will begin trading once the difference in the prices at which they are willing to buy and sell narrows to $1. ![]() To kick off the direct listing, Citadel Securities and Morgan Stanley will talk with buyers and sellers. are splitting about 90% of the $22 million in fees earmarked for all 10 advisers." Slack will not be selling new shares, therefore the proceeds of the direct listing will go to employees and investors who sell their stock. Moreover, there is no road show for the direct listing and the pressure for a first-day pop is more muted.Īnd the fees Slack is paying are lower as well. As Bloomberg reported, "three banks- Goldman Sachs, Morgan Stanley, and Allen & Co. That last point hints at one of the key differences with a direct listing. In an IPO, a company pays banks that run the process a fee of 7% of the amount raised.įor that, the bank does a road show which introduces the company to investors, it lines up buyers before the shares go public, it helps set the price for the first trade, and it stands ready to buy shares in order to create a big first-day pop that it hopes will strike the right balance between creating a Fear of Missing Out among the general public and leaving too much money on the table for the company. A direct listing is quite different from the more common Initial Public Offering (IPO). ![]()
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