Slack Technologies is expected to be valued at between $16 billion and $17 billion when it goes public June 20. That’s about 20 times projected revenues and more than twice the $7.1 billion valuation in its last private funding round.
Yet in paperwork filed with the SEC, the messaging software company said it can’t guarantee it will ever become profitable.
“That’s unnerving when you see that in an S1 filing,” Daniel Newman, principal analyst and founding partner at Futurum Research, told Yahoo Finance’s The First Trade.
“I would be a little apprehensive when a CEO says we don’t have a route to making money.”
Parade of profitless companies
However, investors have been quick to enthusiastically embrace a string of profitless companies coming to market this year.
Beyond Meat (BYND) soared 163% in its first day of trading at the New York Stock Exchange, even though the maker of plant-based proteins lost nearly $30 million last year on about $90 million in revenue.
The cybersecurity software company CrowdStrike (CRWD) reported a net loss of $140 million in its last fiscal year on $250 million in revenue, yet the stock roared 70% in its market debut.
Slowdown in growth
Slack, which makes workplace message software, recently disclosed that it expects revenue growth of 50% in its fiscal second quarter, and while that’s enviable growth for many companies, it actually represents a slowdown.
The San Francisco-based company expects revenue growth of 52% for the second quarter of its 2020 fiscal year, down from 67% annualized growth in Q1.
For the full 2020 fiscal year, Slack expects growth of 49%, compared with 82% growth in its 2019 fiscal year and 110% growth the prior year.
“Their growth has started to falter a little bit,” Newman says.
“That’s got to put some pressure on investors as well as pressure on [CEO] Stewart Butterfield,” Newman says. “We’ve seen some of these other listings that were supposed to be huge first-day successes like Uber (UBER) and Lyft (LYFT) that just haven’t quite panned out this year.”
Slack’s ‘direct listing’
Slack burned through $97 million of cash last fiscal year, but has over $841 million of cash and investments on its balance sheet.
That healthy balance sheet is one of the main reasons why the company is not issuing new shares to raise money for itself.
Slack will offer its shares in a process known as a direct listing, where the company floats its existing shares and lets the market determine the price. Unlike a traditional IPO its allows early investors to begin selling their existing shares immediately.
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.