Slack IPO Preview: Good Company, Unsustainable Valuation Expectations

The seemingly endless stream of technical IPOs (IPOs) continues. In recent months we have been relatively skeptical about many of these offers, including Lyft (NASDAQ 🙂 and Uber (UBER).

Can Slack, a San Francisco-based messaging application, comes out above other much-praised IPOs to become not only a unicorn company, but even slightly rarer, a stock market investment worth investing in? Slack plans to be made public through a direct list, but the first trading day is unknown. However, based on earlier IPOs, we expect it to be marketed at the end of May under the ticker SK. Its rating at the IPO & # 39; s is also unknown when we write this, but we might find some clues from Slack & # 39; s S-1; we will return to the subject of his appreciation later in this post.

Slack characterizes itself as an application for business message exchange with the aim of facilitating communication within teams and in organizations. Originally it was created as an internal tool at Tiny Speck in 2013, the founder of the software company Slack built earlier. However, when it turned out that the product was suitable for the business market, Slack became the most important product – and Tiny Speck was renamed Slack Technologies.

Slack’s business model is based on monthly or annual subscription costs per user, with costs ranging between $ 6 and $ 15 per month per user, depending on the functions required and the resulting billing cycle. Slack also offers a free version with limited functions. As is typical for many companies, the free version provides an introduction to the messaging tool of the service, hoping that organizations will decide to increase and expand the options offered, and thus convert to paying customers after the free trial period

Slack & # 39; s adaptability and easy integration into any organization based on what the company needs and wants separates it from competitors.

Turnover and income

This is the most obvious fact of Slack’s S-1: the company is not profitable. In the last three years it lost $ 140 million, $ 180 million and $ 146 million respectively. Yet, as is the case with many IPOs, profitability is less worrying at the moment because the company focuses on revenue growth.

In addition, revenues increase from $ 105 million in 2016 to $ 220 million in 2017 to $ 400 million in 2018, which means a growth of 110% from 2016 to 2017 and 82% from 2017 to 2018. In 2016, lost Slack $ 146 million to $ 105 million in revenue. Two years later, Slack loses $ 140 million on $ 400 million in revenue, so his outlook looks better than two years ago, an encouraging sign.

Customer Analysis

With around 600,000 organizations of different sizes using its messaging app, Slack has more than 10 million users in total. Unfortunately, at the moment, the vast majority – around 512,000 – rely on the free version. As a result, 88,000 organizations remain the main source of income for Slack.

Slack Paid Customer Growth

Fortunately for Slack, the number of paying customers was impressive. That metric jumped 59%, from 37,000 to 59,000 in 2017, and 49% to 88,000 in 2018.

Of those 88,000 organizations, 575 in total pay more than $ 100,000 for their subscriptions. These heavy hitters are crucial for Slack’s growth. In 2018, 40% of Slack & # 39; s revenue came from this subset of users.

Slack understands that growing this part of their user base is the key. The company actively tries to offer functionality that is aimed at large organizations, together with the development of a direct sales team aimed at this target group. In 2017, only 298 organizations paid more than $ 100,000 a year. That is 93% grown to the current 575 organizations.

Messaging Moat?

The mission of Slack is now to become the communication system for organizations, inter alia by disrupting e-mails, which requires separate mailboxes that fragment information and limit transparency. Similarly, the Slack messaging system can simultaneously pass on all necessary information to multiple recipients in a simple message.

The stickiness of his platform, especially where network effects increase the value of the service as the number of users grows, gives Slack the initial infrastructure for a potential messaging moat.

Slack Product and Partnerships Timeline

In addition, Slack has done an excellent job due to his & # 39; protective barriers & # 39; by entering into partnerships and integrating support for third-party software and tools from companies such as Google (NASDAQ :), Atlassian (NASDAQ 🙂 and Salesforce (NYSE:).

Indeed, Slack reports that third-party developers had created more than 450,000 applications and custom integration options over the three months in January, so that users can tailor Slack to their own needs. In fact, the word & # 39; integration & # 39; appears. on average once per page on the first 100 pages of the company’s S-1. It is clear that Slack sees that as an important selling point.

It is also one of Slack & # 39; s most effective growth factors. The company has created a sandbox that is generic enough to fit into every use case for communication, while allowing customers to integrate their own specific products, creating a very sticky platform that will not rush users to move to the next communication app that unavoidably released by competitors.


The exact rating that Slack is looking for is still a mystery at this time. However, we do know that Slack raised $ 400 million in August, making it worth $ 7 billion at the time. Some analysts expect Slack to look for a valuation of up to $ 10 billion.

With its good growth prospects, we think that Slack has a real chance of profitability, as it becomes the go-to tool for internal business communication, even though it still loses money. Based on what we know about the S-1, a valuation of $ 9 billion seems appropriate. According to a CNBC report, the price of Slack shares in private markets is currently putting its valuation at a sky-high $ 16.7 billion – which would mean that Slack’s value has more than doubled in the last 8 months.

One last thing to keep in mind – Slack has opted for direct quotation, which means that there are no insurers to reduce volatility in the early days of trading. This is not necessarily bad. Spotify (NYSE 🙂 has already done it. Nevertheless, it is something to keep in mind in case you are considering trading the shares on IPO day.

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