IPO

Slack updates public during Investor Day while Uber and Lyft tank

May 13, 2019
2019's tech IPO mania took an interesting turn on Monday as Slack offered up revised financial figures during its Investor Day presentation, while Uber and Lyft continued to slide to new lows.

For the quarter ended April 30, 2019, Slack's updated S-1, released on Monday ahead of the presentation to investors, revealed estimated revenue to be between $133.8 million and $134.8 million. Those numbers represent increases of 65.4% and 66.6% YoY, respectively, compared with the figure of $80.9 million from 2018. Slack's loss from operations for the quarter ended April 30, 2019, is expected to be between $39.4 million and $38.4 million, at least $12 million more than the same period in 2018.

Of particular interest to prospective investors, Slack's updated S-1 filing reveals that privately held Class B shares sold for between $25 to $27.25 in April. This marks a continued increase from March's range of $21 to $26 and February's stalled price of $22, which was unchanged from last November's sales. Shares last fell below $20 last October when 314,000 shares sold for $13.79.

This could be viewed as a pricing forecast for the company's public debut, given Slack's choices of a direct listing versus an underwriter-backed public offering. Since a direct listing means the forces of the free markets decide the stock's debut price, its last-known privately held share prices may help guide the bid and ask prices on Day One in New York. Slack announced it will commence trading on June 20 on the NYSE under the symbol "SK."

Ridehailing stocks continue to bleed

However, as seen with Uber and Lyft, privately held share prices and valuations seem to mean little once companies hit the public markets, where daily macroeconomic sentiment can whip prices for reasons unrelated to the underlying company. This was the broader sentiment in Monday's trading, which saw the Dow Jones Industrial Average dropping over 600 points on renewed fears over the US' brewing trade war with China. Uber lost nearly 11% to close at $37.10, while its Lyft dropped almost 6% to $48.15.

The sharp downward movement from Uber's already-lowered IPO price of $45 led CEO Dara Khosrowshahi to internally comment on the stock's performance in a company-wide email obtained by Bloomberg. Uber's stock has fallen more than 17% total since it began trading Friday.

"Remember that the Facebook and Amazon post-IPO trading was incredibly difficult for those companies. And look at how they have delivered since," Khosrowshahi wrote.

While Khosrowshahi's statement is optimistic, Facebook and Amazon are fundamentally different companies that pulled in profits for reasons different than Uber anticipates.

Facebook's enormous user base gradually attracted more advertisers hungry for the highly targeted data the social media platform provides, leading to higher ad placement bids and a higher quantity of advertisers. Amazon diversified its business away from low-margin direct consumer sales and into the Amazon Marketplace, which sees the company collecting profitable commissions from third-party sellers that, in turn, must deal with potentially low-margin retail sales. Add on the company's cloud computing platform, Amazon Web Services, and its marketplace advertising offerings, and Amazon became a highly profitable company.

Uber's business is inherently more difficult to pivot and diversify, given its dependence on currently human-driven physical transportation and delivery options. The development of sophisticated, reliable autonomous vehicles may be Uber and Lyft's likely exit from the financial red and into the black, but that is still years away, with Lyft forecasting a full autonomous fleet in 10 years' time, per its S-1. While technology exponentially accelerates development, leading to the possibility for this time frame to be dramatically reduced, the path is still unclear and hypothetical. As a result, investor focus shifts back to both ridehailing companies' dependence on comparatively old-fashioned human labor to power physical objects driven by the losing proposition of price undercutting between the two rivals to convert more customers.

As Slack gears up for its public debut, its choice of a direct listing may help the company save face should it see the same fate as Uber and Lyft. In comparison, for example, Lyft's upwardly revised debut price of $72 seems to have been a generous cash-grab for the company at the expense of retail investors, who continue to bleed capital with each losing day. Slack's direct listing would free the company of negative backlash over any hypothetical IPO pricing since the free markets will fully be in control on June 20.

Featured image of co-founder and CEO Stewart Butterfield courtesy of Slack

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