The icon for the chat service app Slack, by Slack Technologies Inc., sits on the screen of an Apple Inc. iPhone 6 smartphone in this arranged photograph in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Slack Pitches Potential Investors on a Few Big-Spending Customers

(Bloomberg) -- Slack Technologies Inc. may have more than 10 million daily users, but it wants potential investors to focus on a tiny sliver of its customers: the 575 businesses that pay more than $100,000 a year for their employees to use its workplace-messaging product.

The San Francisco-based company, in its U.S. Securities and Exchange Commission filing Friday for an unusual direct listing, emphasized that it has been pushing further into the realm of big enterprise customers. Slack’s premise is that once a company starts using its services, its workers will enjoy using the platform so much that the employer will have to buy more over time.

“People love using Slack,” the company declares in its filing no less than four times.

Slack’s platform is available starting with a free tier, ascending through paid tiers for more complete services. More than 500,000 organizations have free subscriptions for Slack, and more than 88,000 pay for the service, according to its filing.

Forty percent of Slack’s revenue for the year ended Jan. 31 came from the 575 largest customers in the $100,000-plus tier, whose ranks almost doubled in the past year, according to the company’s filing. Slack relies on a metric, net dollar retention rate, that measures revenue growth from existing customers. That rate was 143 percent for the past year, down from 152 percent the previous year.

Net dollar retention rate is “an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain, and grow revenue from, our paid customers,” the company said.

In other words, Slack hopes that once people at a company start messaging each other with its service, their coworkers will join in and the company will pay increasingly more for additional access.

Revenue Doubles

While Slack has occasionally shared annual recurring revenue and a few other metrics, its filing gave potential investors their first look at key financial information, revealing the company’s slowly contracting losses against a backdrop of rapid revenue growth. For the year ended Jan. 31, Slack had revenue of $401 million, almost double the $221 million figure for the same period a year earlier. Its net loss shrank slightly to $139 million from $140 million during that period from the previous year.

Unlike a traditional IPO, Slack won’t be issuing new stock to raise cash for operations.

“Slack is still burning cash,” said Cameron Stanfill, an analyst with research firm PitchBook. “With no additional cash being raised in the direct listing the company will rely on the $841 million in cash on its balance sheet from its prolific fundraising from VCs, which would provide plenty of runway at the rate of last year’s negative $97 million in free cash flow.”

Slack cautioned that it remains vulnerable to competition if it fails to keep pace technologically or fails to grow its sales. It lists Microsoft Corp. as its primary rival, but also notes that companies including Alphabet Inc., Cisco Systems Inc. and Facebook Inc. are developing related products.

Pinterest, Lyft

Slack’s listing plans come as several high-profile tech unicorns -- private companies with valuations of at least $1 billion -- gallop toward the public markets.

Digital scrapbook company Pinterest Inc. raised $1.4 billion in its initial public offering on the heels of ride-hailing company Lyft Inc.’s $2.34 billion listing, the year’s largest so far. While Pinterest’s shares have gained 57 percent since its debut, Lyft has dropped more than 20 percent since its IPO offer price.

Ride-hailing giant Uber Technologies Inc. is planning what is expected to be the year’s biggest U.S. IPO. It said in a filing Friday that it planned to sell 180 million shares for $44 to $50 each to raise as much as $9 billion. That offering would value the company at $84 billion based on the shares outstanding after the offer, or as much as $91.5 billion when stock options, restricted shares or other stakes not included in the outstanding total are taken into account.

In private deals in the past two months, Slack shareholders have sold stock at prices as high as $25 or $26 a share, which implies a valuation for the company of about $16 billion, people with knowledge of the matter have said.

Slack plans to list its shares on the New York Stock Exchange under the symbol SK. The stock could open for trading in 30 to 40 days based on a standard schedule for direct listings.

Morgan Stanley has the high-profile job of advising market maker Citadel Securities LLC on a fair price for the opening trades of Slack’s shares. The pricing decision will come after simultaneous supply and demand auctions on the morning the stock is listed. Last year, Morgan Stanley led music-streaming company Spotify Technology SA through a similar listing.

©2019 Bloomberg L.P.