The business messaging service Slack is going public this week, but not in the typical way. They are bucking the trend of high-priced and high-profile Silicon Valley IPOs by offering their shares in a direct listing. This allows investors and employees to offer their shares directly to the public.
Whereas an IPO sells a controlled number of stocks to banks and other brokerage firms who serve as “distributors,” a direct listing cuts out the middle man. Employees can sell their shares directly (or not) when they are first available on Thursday.
This move isn’t unheard of, even for major companies. Spotify also chose a direct listing when it went public last year.
More on Slack
For those not familiar, Slack is a peer-to-peer messaging service design to help businesses consolidate their communications. We here at Unicorn Wealth use it every day, and it can be very helpful. There’s no need for chains of emails, unnecessary conference calls, or extended meetings. Slack allows any number of groups or threads to discuss a business’ agenda.
But all is not rosy in this direct listing. Slack is targeting a valuation of roughly $16-$17 billion. And while the revenue has increased considerably over the last several years, the revenue growth rate of the company has slowed considerably. Additionally, like so many tech unicorns, it has never turned a profit. In fact, its losses are expected to increase next year.
These issues may be part of the reason Slack chose to go public via direct listing, though they aren’t the only causes. This week, no news will be good news. If the stock starts trading and holds steady, then their public debut will be seen as a success.
For the broader markets, it will be interesting to see how a direct listing fares in the year of the IPO. A successful debut for Slack could tempt other unicorns to follow suit.