This was originally published on Beth.Technology on June 6th.
June 20 this the official date of the Slack IPO, although the technical term is not an IPO but rather a DPO for Direct Public Offering. Of the cloud software companies to go public over the last few years, Slack may be Silicon Valley’s pet favorite. You can think of Slack as a cloud-based messaging and delivery hub for teams as email is ineffective for frequent communication and projects. The product is simply amazing in terms of productivity and team work flow. From a customer perspective, the cost of the paid product is offset by the time employees save by eliminating collaboration friction such as long email threads and lost files. With that said, there will be plenty of product bias on this stock from Slack power users.
Prior to the Slack IPO (or DPO to be exact), I had cautioned that cloud software is pricey right now and is breaking records from the dot-com era on price-to-sales ratios. Cloud software has carried the Nasdaq rally from December lows with some cloud software stocks seeing 100% returns compared to 13% on average from mega-cap FANG stocks over the last six months.
IPOs in the cloud software category have been especially rewarding over the last two years with PagerDuty, Okta, Twilio, Zoom and a few others trading at triple percentages from their IPO price. By simply breathing the same air as the cloud software vertical, Slack is likely to see a healthy bump when the company officially begins to trade. Notably, Class B shares are trading privately between $21 and $31.50 over the past four months with a volume weighted average of $26.38, which represents a 142% increase in value from the last private valuation of $7 billion in August of 2018.
Keep in mind, we saw the fragile ground cloud software companies are on with Zuora, which reported disappointing earnings resulting in an overnight loss of 30% in value with stock price dropping from $20 to $14 on May 31 st.
Setting aside my affection for Slack (I’m logged in on two separate accounts as I write this), there are a couple of issues that require more visibility. One paramount issue is…