Slack's Updated S-1 Offers More Financial Details, Shows IPO Is June 20

Slack Technologies has taken one of the final steps it needs to take in preparation for its public debut. Late last week, the workplace messaging platform provider filed an updated S-1 with the Securities and Exchange Commission with its most recent financial data and details about its long-awaited direct public offering (DPO). The company will begin trading on June 20 using the ticker symbol WORK.

The startup, with more than $1.1 billion in total assets, charges companies for enhanced features for its real-time messaging software. Let's take a look at the latest information available from this tech unicorn's filing and what this means for investors as Slack prepares to go public.

It's still losing money

For the quarter ended April 30, Slack reported revenue of $134.8 million, up 66% year over year. That growth is somewhat slower than the full-year increases of 82% and 110% the company posted for the years ended Jan. 31, 2019 and 2018, respectively.

The losses continue to pile up as well. Slack generated a net loss of $31.9 million for the quarter, about 28% worse than the $24.9 million loss in the prior-year quarter.

It helps to take a wider view and put those losses in perspective. For the full year ending Jan. 31, Slack's loss of $138.9 million was essentially flat year over year compared to the $140.1 million it lost during the prior year. The increased losses in the most recent quarter could be the result of seasonality, accelerated expansion expenses, or the additional expenses necessary to take the company public.

Continued robust user growth

Slack revealed in its filing that the number of paid customers grew to 95,000, up 42% year over year and 8% sequentially, while customers paying more than $100,000 per year increased by 84%. Existing customers continue to adopt additional services at a high rate, as Slack's net dollar retention rate was 138% for the quarter, down slightly from 149% during the year-ago quarter.

The company uses its free subscriptions to attract new users and funnel them into paid plans. Slack counted more than 600,000 organizations with three or more users, though more than 500,000 of those organizations use the free plan. Altogether, the site has more than 10 million daily active users in 150-plus countries. Half of those users are outside the U.S.

This helps to illustrate the long runway Slack has for finding and attracting new paying subscribers.

Voting rights and potential pricing

Potential investors should also be aware of the dual-class share structure Slack has in place, which gives founder and CEO Stewart Butterfield and other insiders significant control, leaving investors with little say in the decisions regarding the running of the company. The Class B shares owned by insiders give them 10 votes per share, compared to just one vote for Class A shares. As a result, Butterfield controls 17.8% of the voting rights of the company as of April 30. Butterfield, various directors, and other executives of the company maintain as much as 52.4% of the total voting power if they exercise all their current share-buying options.

Because Slack has chosen the DPO, a less traditional route for its public offering, the company doesn't use investment bankers to help determine its share price. Slack revealed in its filing that the price of its shares on private markets ranged between $21 and $31.50 between Feb. 1 and May 30 of this year, with the volume-weighted average share price at $26.38.

Is Slack a buy?

Like any new stock issue, Slack's direct offering is a dicey proposition. The company warns in its S-1 that "No public market for our Class A common stock currently exists. ... Our recent trading prices in private transactions may have little or no relation to the opening public price of our shares of Class A common stock on the NYSE or the subsequent trading price of our shares." Slack also cautioned that the listing of its shares without an underwriter was a "novel method for commencing public trading," which could result in greater volatility.

Let the (potential) buyer beware.

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