Shares in Slack, the company behind the workplace messaging platform of the same name, surged as the firm launched on the New York Stock Exchange.
The San Francisco company’s shares opened trading at $38.50, above the $26 guide price set by Wall Street, rising nearly 60% by midday Eastern Time to more than $41.
That surge valued the company at $25bn (£19.7bn), up from the $17bn evaluation derived from the guide price.
Slack, trading with the ticker name ‘WORK’, had a direct listing, meaning that the company did not engage with middlemen investment banks to sell its shares to institutional investors as is the case with a conventional initial public offering (IPO).
Instead, Slack investors sold their existing shares directly to the public on the stock market, allowing the company to save time and money during the listing process.
Allen Shim, Slack’s chief financial officer, said: “We think a direct listing is a more effective and efficient way to get to a normalised level of supply and demand without the constraints of an IPO.”
Slack is the second technology company to list directly in New York after music streaming giant Spotify in 2018, and its Wall Street debut is the latest in several highly anticipated tech IPOs.
Spotify’s direct listing in April 2018 was perceived a success at the time, but shares have since fallen around 15%
below the debut price, as the company sacrifices profit margins for growth.
Ride-hailing companies Uber and Lyft, video conferencing company Zoom Video Communications and digital scrapbooking site Pinterest all went public in recent weeks.
Slack’s trading price gave it a valuation of more than 50 times revenue.
Kathleen Smith, a principal at Renaissance Capital pointed out that the multiple was lower than for other tech IPOs like Zoom, which trades at 88 times revenue, but was very high considering that Slack was not yet profitable.
She said: “They are going to have to do an awful lot to get the company’s fundamentals to justify that kind of valuation.”
But Alejandro Ortiz, principal analyst at SharesPost, said that Slack’s strong opening was built on a string of successful IPOs for enterprise software companies in particular.
He said: “Investors have a love affair with enterprise software companies, and with good reason.
“They continue to perform very well.”
He added that enterprise software IPOs over the past year were trading on average at more than 100% above their listing price.
Slack’s revenues soared more than 80% to $400m in 2018, but against losses from operations of $144m.
It has more than 90 million users but only around 100,000 paid customers to date.
“We are in a growth phase right now and we are continuing to invest, but we expect to hit break even cash flow soon,” CFO Shim said.
Slack raised a total of $1.4bn between when it was founded in 2009 and its last funding round in August 2018, with the stated aim of replacing traditional work communication like email with its own messaging platform.
Its users start “channels,” or a group chat with a specific topic, rather than starting an email string about a subject.
Slack was co-founded by its chief executive Stewart Butterfield, the Canadian entrepreneur behind photo sharing platform Flickr, which was eventually sold to Yahoo in 2005 for $25m (£19.7m).
Source: SKY NEWS