2016 IPO Prospects: Slack Prepares To Communicate With The Market

| About: Slack Technologies (SLACK)

Summary

Slack has pivoted to becoming a real-time messaging, archiving and search tool to strengthen communications within teams.

The enterprise social networks and collaboration market is estimated to grow $800 million to $4.5 billion by 2016.

The growth in the market is due to the continued benefits that organizations are seeing in terms of improved utilization of resources through better employee productivity and communication.

According to an IDC report, the enterprise social networks and collaboration market is estimated to grow $800 million to $4.5 billion by 2016. The growth in the market is due to the continued benefits that organizations are seeing in terms of improved utilization of resources through better employee productivity and communication.

Slack's Financials

SanFrancisco-based Slack (Private:SLACK) was founded in January 2013 by Flickr executives Serguei Mourachov, Eric Costello, Cal Henderson and Stewart Butterfield. The company was born as Tiny Speck and was part of a Flash-based multi-player game called Glitch. It soon pivoted to becoming a real-time messaging, archiving and search tool to strengthen communications within teams.

It changed its name to Slack and defined its vision as that of making working life simpler and more productive for employees. The application allows employees to send messages either directly to each other or to a team through a private channel. Users also can collaborate with each other through a simple drag-and-drop method to share files. Its search feature allows users to search for messages, notifications and files within the Slack archive and within the content shared on Slack.

Slack operates on a freemium model with the basic version available for free and higher-end products available in prices ranging from $6.67 per user per month to $15 per user per month. The premium versions feature capabilities such as unlimited archival of messages, unlimited integrations, simple usage statistics, customer support, and Google authentication. The company also is working on an enterprise level application. It will feature federation across multiple teams with a unified team directory, unified security, data retention and compliance policies across all federated teams as well as organization-wide reporting, metrics and analytics, and consolidated billing and administration.

In December 2015, Slack announced the acquisition of Screenhero, a startup that competes with Webex. Screenhero has screen sharing and voice chat capabilities that Slack plans to integrate into its own offering.

Slack is venture funded and does not disclose its financials. Slack is used by more than 2 million active users daily. Some of the organizations that have used Slack for collaboration and communication include SurveyMonkey, DoSomething.org, The Times in the UK, and the NASA Jet Propulsion Laboratory, to name a few. Its revenues are not known and the company is still not profitable. It has raised $339.95 million in funding so far with investments from Social Capital, GV, Kleiner Perkins Caufield & Byers, Accel, SV Angel, Andreessen Horowitz, DST Global, Horizon Ventures, Index Ventures, IVP, Jeff Weiner, and Slow Ventures. Its last round of funding was held in April 2015 when it raised $160 million in a round led by Social Capital at a valuation of $2.8 billion. In an earlier round in October 2014, the company was valued at $1.12 billion.

The company is now preparing for an IPO. It has initiated an IPO readiness campaign and commented:

"We've done our first external audit and we've put in place a lot of controls and security practices. There's a lot of predictability that needs to be evident in the business, so we're spending a lot on analysis and data infrastructure."

It already has a few competitors who have gone public but aren't doing very well lately. Jive Software (NASDAQ:JIVE) went from the Unicorn to Unicorpse status. Jive had recorded $178.7 million in revenues and losses of $56.5 million in 2014. The stock had done well on listing and delivered a market capitalization of $1.5 billion. But it has fallen since and is currently trading at a market capitalization of $255.8 million.

Last November, another competitor, Sydney-based Atlassian (NASDAQ:TEAM) also went public. Atlassian had recorded revenues of $319.5 million in 2015 with a net income of $6.8 million for the year. The company listed at a valuation of $5.8 billion and is currently trading at valuation of $4.4 billion. Atlassian's strong IPO can be attributed to its strong fiscal discipline. Unlike Slack, Atlassian was bootstrapped initially and thus understands the need for a cash positive business model. Its profitability is attributed to its minimal investments on sales teams and relying on building a strong product that speaks for itself.

Slack, on the other hand, appears to be over-funded. Most such companies lack fiscal discipline and when examined through the stock market's lens fail to deliver. One will have to wait for Slack to publish its detailed financials before making a clear judgement on which way Slack would go.

Disclosure: None.