Slack Technologies, Inc. [NYSE: WORK] is in positive territory on its first day of trading. At the time of writing, the stock is at $38.64. While there is some level of volatility in its price action, it is holding up well, an indicator that bullish sentiment is positive. The company has gone public at a reference price of $26, which gives it a valuation of between $16 and $17 billion. However, unlike the traditional IPO, Slack has done a direct listing that has Goldman Sachs, Allen & Co, and Morgan Stanley as advisors.
A direct listing means that no new shares will be created. It is an opportunity for existing investors to sell their shares to the public. A direct listing approach has some risks. One of its biggest risks is that, there are no guarantees for the share sale. In essence, for a direct sale to be successful, the company needs to be in a strong financial, and market position for it to draw in new investors. In Slack’s case, the fact that it has chosen to take this route means that it believes it has strong fundamentals, and from its current price action, investors have faith in its fundamentals.
Its revenue projections paint the picture of a growth company. In its projections, the company expects to generate revenues of $590 million in 2020. This would translate to a year-on-year growth rate of 50%. Some analysts have even much bigger projections for the company. For instance, Bloomberg projects that the company could generate revenues that are higher by 65% year-on-year. This means that, though the company is yet to turn a profit, it has huge potential of profitability in in the long run, which could positively impact on the bottom-line. This has significantly reduced its risk in the direct sale.
Besides, Slack has been on the news for the past week, and this has raised sentiment around it. It is one of the most trending companies at the moment, and has been one of the most awaited public listings this year. On top of that, Slack’s listing is coming after a series of high flying IPOs that have created a positive investor sentiment around unicorns. New listings such as Beyond Meat have performed extremely well. Even the ones that disappointed at first, such as Uber and Lyft seem to be catching up again, and are on a recovery path.