Slack set to enter a loose market

by Scott Denne

Another enterprise startup plans to test Wall Street’s seemingly insatiable appetite for business technology vendors. Slack has unveiled its prospectus for a direct listing on the NYSE, forgoing an initial public offering. Like other recent enterprise tech companies to enter the public market, Slack, though heavily funded at premium valuations, still appears to have room to trade up in its debut.

The firm’s forthcoming listing follows closely on the IPO of fellow workplace communications software developer Zoom Video. The latter company fetched an astonishing 60x trailing revenue in its first day of trading – a level it retained in the week since. Slack would need only a fraction of that multiple to leap beyond the roughly $6bn valuation it boasted in its most recent fundraising. There’s every reason to think it could.

As we noted in our coverage of Zoom’s first day, enterprise companies (those selling technology to businesses) have gotten a bullish reception in the public markets, with many of the 2018 and 2019 crop of IPOs trading above 20x revenue. To match its private company valuation, Slack, which posted $401m in revenue in its recently closed fiscal year, would need to fetch a 15x multiple. Its shares have recently traded hands in private transactions at twice that level. And given the parallels between it and Zoom, investors could carry it even further.

Both vendors are roughly equal in size (Zoom generated $330m in trailing revenue), with a similar growth rate. Slack came up just a few percentage points shy of doubling its topline, while Zoom rose a bit above that. The two companies also play in separate corners of the workplace productivity market that are both expected to garner increasing enterprise investments in the coming year. According to 451 Research’s VoCUL: Corporate Mobility and Digital Transformation, 40% and 43% of respondents plan to invest in team collaboration (Slack’s purview) and online meetings (Zoom’s specialty), respectively, over the next 12 months.

Posted in IPO