Slack Is No Slacker On First Day of NYSE Trading
Slack, the San Francisco, California-based technology company that claims to “put collaboration at your fingertips”, experienced a wildly successful first day of trading on the New York Stock Exchange under the ticker symbol WORK. By the end of Slack’s first day of public trading, shares in the messaging-oriented tech company had zoomed to $38.62, a whopping 48% above its reference price of $26 per share.
This is exceptional news for many investors, including Tower Equity, an early investor in Slack.
Slack’s open on the New York Stock Exchange is rather notable in a number of ways.
First, there was no initial public offering (IPO) as is the case for most companies that begin to trade on the public market. Instead, Slack opted for the less common “direct listing” model, sometimes called a “direct public offering” (DPO). The difference is stark. Companies that opt for an IPO are inherently involved in the creation of brand-new shares of the company which are then sold to the public after an extended period of marketing known as a “roadshow” during which the IPO underwriter gauges the public demand for the new stock. By contrast, a DPO simply involves the placement of a company’s existing shares onto the public market rather than the issuance of dilutive new shares.
Second, the successful direct public offering of Slack’s shares corresponds to other very successful public offerings of other software companies including CrowdStrike Holdings, PagerDuty Inc. and Zoom Video Communications Inc. In each of these cases, Wall Street has proven to be very receptive. In fact, Alejandro Ortiz at SharePost points out that 10 different software companies that have gone public in the past year are now trading at double their IPO pricing, on average.
Clearly, the market is hot for software publishers.
Owners of Slack shares are enjoying the results. As recently as 2018 during a recent funding round, Slack’s valuation was already a lofty $7.1 billion. After the Direct Public Offering, Slack’s market valuation nearly tripled from that level to almost $20 billion.
The future looks bright for Slack, though management is quick to admit weakness in terms of a very heavy concentration of revenue from a relatively small number of customers. A potential solution appears to be converting a portion of their free user base – over half a million users – into a paid subscription.
Still, Slack has to be thrilled with the results of their direct public offering, which stands in stark contrast to the rather lackluster public offerings of other major technology brands like Uber and Lyft.