As we discussed earlier this week, Slack decided to do things a little differently. The Unicorn cloud-based networking platform went public, but not the old-fashioned way. Slack decided to make itself public via a direct listing.
And so far, it looks like that decision was a success. Despite a slight dip early in day two, Slack (NYSE: WORK) shares jumped after the initial sales on Thursday. Now, Wall Street is wondering whether other companies will follow suit.
Slack had the freedom to go with a direct listing for two main reasons. First, traders know and trust Slack, especially with the market’s interest in cloud services. Second, they were not looking to generate cash. That’s important, because companies like Uber and Lyft have gone with an IPO specifically as a revenue stream.
“We had no need for new capital so we took this route,” Slack CFO Allen Shim told MarketWatch. “We consider a direct listing the proper vehicle for us, and a way for the public market to be more efficient and let it do its job. We wanted to avoid the distortion of a traditional IPO in the market.”
Avoid it they did, getting a better view of their true value. With the fluctuation of recent IPOs, direct listings are a better indicator of valuation overall. Companies often list IPOs at a discount from expected price to give subscribed investors an early profit. Listing directly cuts out the middle man and gets a truer sense of the picture.
Will Others Follow Suit?
Now, the question turns forward to other soon-to-be public companies. Will anyone follow in Slack’s footsteps with a direct listing? Mark
“I just don’t you think you have enough data yet,” Brendan Connaughton of Catalyst Private Wealth told MarketWatch. “It’s worked all right for Spotify but I just don’t think you have enough of a track record yet. It is a theme that could happen, but you are also talking about a long [investment banking] history. You are fighting City Hall pretty hard.”
Bucking trends on Wall Street is never easy. But for Slack, it was profitable. As the year of the IPO continues, it will be interesting to see whether there are just a few more direct listings than anyone expected.