A look at the Slack IPO
Summary: Slack Technologies is the latest tech unicorn to join 2019's IPO frenzy, joining the likes of other venture capital darlings Lyft, Uber, Pinterest and Zoom. Investors will need to weigh the firm's impressive user growth against what appears to be a high valuation.
When Slack updated its filing last week, the company said the price of its shares on private markets ranged from between $21.00 and $31.50 between February 1 and May 30 of this year, with the volume-weighted average share price at $26.38.
Established in 2009, Slack (WORK) is a cloud based set of software tools for organisational communication, facilitating team collaboration services and internal messaging tools. Slack’s products facilitate the use of emails and group chats through a team environment, allowing multiple users access to the flow of information among various team members.
Slack offers a free product with limited services to attract new users, but a premium is charged for additional features and services. Slack’s main paid features are the ability to search more than 10,000 archived messages and add unlimited apps and integrations. Slack's ambition of replacing email as a primary means of organisational communication is likely ambitious, but being an early mover in the space means it maintains an advantage over competitors.
Slack has enabled app support and custom integration for third party software providers like Google and Salesforce, thus increasing the value of its existing infrastructure, helping to form a protective moat. In fact, the company's S-1 filing reports that in the first three months of this year alone, third party developers had created over 450,000 applications and custom integration options. But even with efficient integration systems, Slack will still face tough competition from the likes of Microsoft whose own team communication platform within the Microsoft software suite enables ease of use for organisations already running Microsoft software.
Slack has had impressive user growth, with the number of paid users growing at more than 40% per annum over the last two financial years. As the number of users on the platform grows the value of the service increases through the network effect.
Slack has around 600,000 organizations using its software which equates to more than 10m users. But at present, more than half only use the free version. And, whilst customer acquisition remains impressive, the pace is slowing, so the path to profitability is still some time away. But with a large amount of unpaid subscribers, the capacity for converting paid subscribers is there.
Based on the recent share sales volume-weighted average share price at $26.38, Slacks valuation is lofty $16 billion, likely a little too rich. Remember, the company is not listed to raise additional capital but to give existing investors an exit opportunity.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.