It’s been a big year for IPOs so far, with some big winners as well as some losers, though crucially all have been loss making. Slack Technologies is set to follow a slightly different route this week, following in the footsteps of Spotify in doing a direct listing, rather than an IPO.

Slack opts for direct listing

In some respects a direct listing is a better way of determining the value of a new company to market. No bankers juicing the valuation with markets look to establish the demand by way of supply and demand. In normal circumstances, when companies embark on an initial public offering (IPO), the process involves the issuing of new shares. A direct listing means that the existing private shareholders will make their own private shares available for sale to the wider market, with no clear indication as to where the actual value might lie.

Slack share price expectations

Expectations are for a valuation of $16bn, which would put the shares in a price range of between $24 and $27 a share.

The company, which is an instant messaging and workplace collaboration tool, and also provides mobile apps for iOS and Android, is predicted to generate revenue of around $590m for 2020. This would be a significant increase on what the current Bloomberg consensus is, which comes in at $454.5m, and would be an almost 50% improvement on last year's number of $400.9m. Slack lost $138.9m last year, and is expected to lose $180m this year. These losses should start to come down as revenues grow.

Slack’s biggest problem is how its customers are likely to perceive it in terms of how it links up to other cloud applications. Its software acts like a bridge between different software programs, in the same way a broker acts as an intermediary between a buyer and seller. Co-founder Stewart Butterfield described the Slack service as a replacement for internal email, as well as a central place to exchange files, and link up with other software programs.

Slack’s biggest problem is likely to be convincing potential new clients of the merits of a program that sounds like a combination of email, WeTransfer and a chat application rolled into one.

We will find out later today whether the valuation lives up to the hype.


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