Workplace messaging service Slack become the latest hot technology company to sell its shares to the public on Thursday, soaring 50% higher than expected on its debut.
The San Francisco-based company’s shares started trading on the New York Stock Exchange at $38.50 – well above the $26 guide price – and valued the company at $20bn making a billionaire of co-founder Stewart Butterfield and potentially ushering in a new era of stock market sales.
Slack sold its shares in a direct listing – eschewing the traditional initial public offering route. A direct listing dumps the costly underwriters, who do the preliminary sales work and establish an initial price, and the investor roadshow and instead takes the company’s shares directly to the market.
While the method saves on banking fees it can also lead to greater volatility in the share price. Only one other big company, music streaming service Spotify, has gone public this way. That share sale is seen as a success and if Slack’s sale goes well too it will encourage others to follow suit.
Slack started life as a messaging app in a game created by Butterfield and others. When the game didn’t take off Butterfield spotted potential in the messaging app. Reborn as Slack the company attracted the attention of top tier Silicon Valley investors raising $1.4bn from companies including Andreessen Horowitz, an early investor in Facebook, Twitter, Lyft and others.
Like most of its peers, Slack is losing money – it lost $138.9m last year and according to the company losses will “significantly increase” over the next few years. Revenues are growing fast up to $400m from $100m three years ago, but growth is slowing as the company gets larger and rival services from Microsoft and Google could eat into its business.
Tilak Doddapaneni, executive vice-president of engineering at digital consultancy Publicis Sapient said there were “question marks” over Slack’s business model despite its popularity.
“While it successfully moved from being a messaging app for a video game company into a company valued at $15.7bn in just six years, the business hasn’t lived up to its ambition of toppling emails quite yet,” he said. “With Microsoft moving into its field with the introduction of Microsoft Teams last year, Slack may soon find that they lack the infrastructure and expertise to keep up with the innovation and scale of the tech giant.”