- $WORK recently performed a direct listing, an unusual process whereby the Company did not place shares to raise capital but instead opted to trade without a traditional IPO.
- Given the Company competes with $MSFT who is obviously larger, multi-product and globally entrenched in the enterprise market and has no sustainable technology advantage, we think $WORK has downside.
- The stock is overpriced at current levels at an enterprise value of $13BN or over 20x 2019E sales.
- Using 10x 2019E sales of $600-650MM plus cash generates a $6.5-7.0BN "fair" value, which we still think is obscene for a freemium enterprise software model with slowing net adds and growth, high burn and massive insider selling by the CEO CFO CTO Counsel and others.
- This EV represents a price target range of $10-$15 per share, about 1/2 current levels. We initiate $WORK with a SELL recommendation.
Note that $26 was an arbitrary "reference price" chosen by bankers who were paid $20MM to conduct the $WORK roadshow. It was not an offering price where 128MM initially registered shares were sold to new investors. It is not an "IPO price" or a real price level off which investors should base their decisions for recent demand for the stock. Further, a few days ago, the Company filed with the SEC to fully unlock all 550MM+ shares for sale by insiders, posing significant near-term downside risk for $WORK shares. We expect selling pressure to be immense for the balance of the year.
We intend to provide further commentary in $WORK in the near future in support of our SELL recommendation.
Analyst's Disclosure: I am/we are short WORK.
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