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June 19, 2019, 7:14 a.m. EDT

Slack non-IPO: 5 things to know about the direct listing

Company depended on 575 of its 88,000 paid customers for about 40% of revenue last year

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By Emily Bary


Bloomberg
Slack filed for a direct listing on Friday.

Slack Technologies Inc. is looking for a better direct-listing fate than Spotify Technology SA.

The music-streaming service reminded tech unicorns late last year that companies don’t have to issue new shares or raise money through a traditional offering if they wish to go public, and now Slack is following in its footsteps. The business-chat company has filed direct-listing paperwork.

Direct listings differ from traditional initial public offerings, in that the company doesn’t issue new shares or seek to raise money through the process of going public. Rather, the listing makes it possible for existing shareholders to sell their shares to the public. After Spotify’s direct listing, many said the approach could be used by other startups, given the lack of share dilution and required lockup restrictions.

But Spotify’s stock /zigman2/quotes/207488629/composite SPOT +0.06%  hasn’t exactly been well received since the company made its public debut, with shares up only 4% from their reference price at the time of the offering, and down 17% from their opening price. Meanwhile, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.0024%  has gained 10% since Spotify went public.

Slack will be hoping its shares are better liked on Wall Street, though the company likely won’t undergo a traditional roadshow through which it can explain its financials to banks and investors in the way companies going the standard IPO route do. Slack recently updated its S-1 with the Securities and Exchange Commission to register nearly 117 million shares and changed the stock ticker it plans to use for trading on the New York Stock Exchange to “WORK” from “SK” as it had stated in its previous S-1.

Slack’s filing reveals a business with slowing revenue growth but narrowing losses, as well as a heavy dependence on just a several hundred key customers, or less than 1% of its paid customer base, for a major chunk of its sales. Here are five things to know about the company:

Revenue deceleration

Slack topped $400 million in annual revenue for its fiscal year ended in January, though growth slowed from the prior period. The company’s revenue rose 82% from $220.5 million in 2018, down from a growth rate of just over 100% a year earlier.

For the first quarter ended in April, Slack generated $134.8 million in revenue, according to a Monday filing, up 67% from a year before.

Founded in 2009, Slack admitted in its prospectus that it has “limited experience with respect to determining the optimal prices for Slack.” The company expects that it might need to change its pricing model periodically going forward.

The messaging company made progress in narrowing its losses, posting a net loss of $140.7 million last year, compared with $181 million a year earlier. Slack continues to see sizable investments in its future, as it grows its sales force and customer experience teams and ramps up marketing spending.

For its second quarter, which ends in July, Slack projects $139 million to $141 million in total revenue and an adjusted loss per share of 19 cents to 20 cents.

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Heavily reliant on big customers

Slack had more than 95,000 paying customers as of the end of January, but only a small fraction of those accounted for a huge chunk of the company’s revenue.

/zigman2/quotes/207488629/composite
US : U.S.: NYSE
$ 147.10
+0.09 +0.06%
Volume: 15,038
June 19, 2019 9:45a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$25.68 billion
Rev. per Employee
N/A
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/zigman2/quotes/210599714/realtime
US : S&P US
2,917.82
+0.07 +0.0024%
Volume: 110.89M
June 19, 2019 9:44a
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