The hottest Canadian-led tech company outside of Canada will list publicly this week without an initial public offering.
Led by British Columbia-born serial entrepreneur Stewart Butterfield, Slack Technologies Inc. will go public on the New York Stock Exchange on Thursday with a direct listing. While the go-public strategy, used by music-streamer Spotify Technology SA, lets a company list shares without raising additional funds, it will still allow investors to buy into the increasingly popular office-communication tool.
The service, based in San Francisco, with offices in Vancouver, Toronto and around the world, takes the spirit of the age-old chatroom and deploys it into the workplace. In its most simple use, it replaces haphazard e-mail trails with concise “channels,” for teams to communicate. But it also integrates a number of tools into the platform, such as letting employees clock in and out of workdays and projects, with simple language-based commands.
Expanding that suite of tools and appealing to a wider range of clients could unlock Slack’s potential for future growth. “This is what will determine the near-term, and especially the long-term, success of Slack as a fixture in the corporate world,” says Michael Facemire, a Boston-based analyst with Forrester who follows the company. “They’ve done an outstanding job so that every developer knows about Slack," but uptake hasn’t been nearly as strong outside of the tech world, he continued.
Ten-year-old Slack has raised US$1.4-billion from investors, including Accel Partners, General Atlantic, and SoftBank Investment Advisers, according to the financing-information website Crunchbase. The company has 95,000 paid customers, 645 of whom handed it more than US$100,000 each in annual recurring revenue as of April, the company said in a news release. The company is forecasting 47-per-cent to 50-per-cent revenue growth, to between US$590-million and US$600-million, this fiscal year over last.
That forecast, however, implies a decelerating growth rate that might worry investors come Thursday. Revenue growth is down from 82 per cent between fiscal 2018 and 2019, and from 110 per cent between 2017 and 2018. That’s on top of continued projected losses for the company: after losing US$139-million last year, it’s forecasting a loss this fiscal year as wide as US$176-million (although the forecast is not in accordance with Generally Accepted Accounting Principles).
The one analyst registered with Bloomberg following Slack, Rishi Jaluria of D.A. Davidson & Co., isn’t dissuaded by its decelerating revenue growth. “All these [software-as-a-service] companies, especially the ones that are just going to market, put out some very conservative numbers,” he says. “I would think, given how big the opportunity here is, there’s upside to the numbers.”
Although Mr. Jaluria has a “neutral” rating on Slack right now, he says that was determined by what he sees as a “high” valuation based on the high end of shares’ private-market trading value in Slack’s most recent quarter of $31.50 a share.
He’s calculated that its fully diluted market capitalization is US$18.9-billion, and that its enterprise value translates to 22.5 times its 2020 revenue forecast – a big premium above its software-as-a-service peer group’s multiple of 14. “Maybe something closer to a range of a 16-times multiple is where there would be opportunity” for a buy, he said.
Slack representatives declined to comment or make Mr. Butterfield available for an interview because of quiet-period restrictions ahead of the public listing – a rare quiet moment for a chief executive used to speaking his mind.
The Lund, B.C.-raised CEO took a winding road to creating Slack. He escaped a Vancouver web-design company that profiteered off of domain names just before the dot-com bust and tried to make a video game. Struggling to raise funding for it, he and his team happened into creating the photo-sharing service Flickr instead.
After Mr. Butterfield and his co-founders sold that service to Yahoo in 2005, he came to regret the US$25-million price tag. He left in 2008 with a legendary resignation letter – “When I joined Yahoo back in ’21, it was a sheet-tin concern of great momentum” – and tried his hand at another video game.
Again, it flopped. And again, its byproduct became a much bigger concern. Despite shutting it down, during its development, his team built a centralized collaboration tool. That tool is now called Slack.
In a 2014 interview with The Globe and Mail, Mr. Butterfield suggested he wanted Slack to become a kind of centralized hub for communication – just like Microsoft Corp. did for software more broadly.
Now Microsoft, with its Teams product, is one of Slack’s chief competitors. But Mr. Jaluria says that where Microsoft’s upper hand comes from enterprise clients already using other Microsoft software, Slack both integrates with a broader set of tools and has a reputation as a best-of-breed collaboration tool. It’s a rare case, Mr. Jaluria says, where “Microsoft has the disadvantage.”
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