What’s up?

Some time ago we wrote about Slack’s plans to go public. Time flies: the event will take place this week, on Thursday, June 20. Now we have more data about the upcoming listing, so let’s have a look into it.

Why is it important?

In general

This week the market is obsessed with the Federal Reserve’s meeting. American central bank will announce its interest rate decision and update its economic forecasts on Wednesday. While investors try to figure out whether the Fed boosts stocks or, on the contrary, triggers a correction, it’s possible to occupy oneself with the new listing. In addition, direct listings are still rare, so everyone will watch the event with great attention.  

For investors

Slack Technologies Inc. will follow the example of Spotify by direct listing on the New York Stock Exchange. This way the company won’t have to pay exorbitant amounts of money to underwriters. No new shares will be issued, the shareholders will just get the opportunity to sell their stocks.

Slack warned that it expects y/y revenue growth to have decelerated as operating losses have widened over the current quarter. Still, the firm’s growth rates are quite impressive: in fiscal Q1, revenue rose by 67% y/y and it projects 51%-53% growth in fiscal Q2. At the same time, financials won’t improve much in the upcoming periods as Slack will have to invest in sales, marketing, and customer experience.

So far, the biggest challenge for the company is that its income depends on several hundred key customers: they constitute less than 1% of its entire customer base and bring Slack more than 40% of its annual revenue. That, of course, makes the messenger vulnerable. Another question that may lead to problems in the future is privacy. Slack has recently provided to FBI with communication record of the cryptocurrency firm Centra tech. It’s necessary to take these risks into account when thinking about investing in Slack.

For traders

Notice that direct listings don’t attract such big interest as IPOs. Guided by the experience of Spotify, we should remember that its stocks lost 10% on the first day of trading. There’s no lockup period that prevents some investors from selling and banks don’t have the options to stabilize the price.

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