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Slack going public in a red-hot IPO market, with a twist – CNBC

Workplace-messaging firm Slack is about to go public in a red-hot IPO market, but it’s approach to going public — using a “direct listing” — is slightly different than an IPO.

The “direct listing” method revives some of the same issues and anxieties that came up when Spotify went public using the same method.

But the world is a lot different than when Spotify went public on April 3, 2018.

Direct listings allow a company to go public without involving underwriters — those intermediaries who buy shares from the company or insiders and then sell them to the public. Instead, the shares simply begin trading on an exchange, in this case the NYSE.

Spotify was the first large company to use a direct listing. The worry at that time was simple: direct listings were an untested way to go public. There were two concerns: 1) because direct listings do not have an initial price that is sold to investors, it was not clear where the stock would open, and 2) In a direct listing, most of the shares are immediately available for trading (in Spotify’s case, about 96%).

There was effectively no lockup period. The fear was that insiders would dump the stock en masse on the first day, leading to chaos.

Reference price

Neither concern proved to be a major issue. Instead of an initial price that underwriters set to sell stock, Spotify and its advisors set a “reference price” of $132 that was roughly based on recent private trades. Spotify opened at $165.90 and closed at $149 on its first day of trading, up about 12%.

Fast forward to Slack, and those anxieties are much less evident. The NYSE has set a “reference price” of $26, based roughly on the price of private trades over the last few months (it has traded privately in a range of $25.75-$31.50).

As for the amount of shares available to trade, Renaissance Capital, which runs the Renaissance Capital IPO ETF (IPO), a basket of roughly the last 60 large IPOs, estimates that 283 million of the 599 million shares outstanding will be available to trade (47%).

Why isn’t the entire share count available to trade? Slack is restricting sales for those who bought private shares less than a year ago, and anyone who is an officer, director, or significant holder of the company.

A bigger concern is who might — or might not — be selling. The six largest shareholders (Accel, Andreessen Horowitz, Social Capital, CEO Stewart Butterfield, SoftBank, and co-founder Cal Henderson) control about 60% of the stock. Some are restricted, but if the majority who are not decide to sit on their shares, supply/demand could be out of whack and the stock could be much more volatile.

As for the IPO environment, it’s hard to envision a more perfect scenario. Investors have been eager to snap up any companies that show signs of growth this year, including those that are losing money:

Recent IPOs

(from initial price)

The two laggards — Uber (down 3%), and Lyft (down 11%), are in a space — ride-hailing — that investors believe may have a very hard time becoming profitable any time in the future.

Concerns

Slack does have high growth with recurring revenues, but it also has plenty of negatives: trading at roughly 34 times trailing revenues, losing money and with a very low barrier to entry.

A bigger concern may be that growth is decelerating: “2Q and FY20 revenue and billings guidance does suggest a meaningful deceleration from current levels,” DA Davidson analyst Rishi N. Jaluria wrote in a recent report, noting that first quarter revenue growth fell to 67% year over year from 78%.

The biggest concern, though, may be its size: depending on the price, almost $8 billion in stock could theoretically be available to trade. That is an awful lot for even a bull IPO market to absorb. By comparison, Uber was an $8 billion IPO.

“Big IPOs are harder to get elegantly into the market,” Kathleen Smith from Renaissance Capital told me.

The hope is that Slack will trade better long term than Spotify, which is trading at $146, below the $149 price it closed at on its first day of trading in April 2018.

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IPO tracker: How tech unicorns of 2019 are doing on the stock market – Vox.com

After years of only sporadic tech IPOs, the spigot has opened. 2019 will likely be a banner year for multibillion dollar companies hitting public markets.

Tech companies have stayed private longer than they have in the past, and they’re worth more than ever. As of mid June, the US has 177 active tech unicorns — the term for startups valued at more than a billion dollars — according to financial data software company PitchBook. A decade ago, there were only nine. Additionally, tech companies like Uber, WeWork, and Airbnb have become household names — meaning people outside the tech community are more likely to invest in them, and by extension have more to lose if these unproven companies fail.

Failure is a distinct possibility. Some 84 percent of US tech companies that went public last year did so without turning a profit. The last time unprofitable tech companies went public at this rate was in 2000, the year the dot-com bubble burst. In 2019, these companies are riding high on venture capital money and investors’ hunger for growth above all else.

Even more concerning, these companies are going public at a time when economists are predicting a new recession may hit within the next couple of years. An economic slump isn’t good for anyone, especially newly public companies like Uber and Lyft with lots of debt. This new crop of IPOs in 2019 will be canaries in the coal mine for the economic prospects of other technology companies, as well as the economy at large — which is increasingly dominated by tech.

To help keep an eye on things, we’ve built an IPO tracker that will update stock prices every few minutes. So far, we’re tracking Lyft, Zoom, Pinterest, Uber, Fiverr, and Slack, which are listed in order of IPO date. In the coming year or so, we can also expect WeWork and Airbnb — maybe even Peloton — to go public. This tool is meant to give you a quick visual perspective on how these tech companies are performing in the stock market compared to their debut prices (what the companies first traded at on the public market).

Of the public stocks on our tracker, only Zoom is making a profit. The other companies, like most tech companies going public lately, are in the red. As of publication, Lyft is trading below its debut price while Uber is slightly above its debut price. We’ve also listed the offer price for each stock — the usually less expensive price at which large-scale investors get to purchase the stock before it begins trading.

We’ll update our tracker as other tech companies go public throughout the year.


Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.

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Spotify’s CFO: The Traditional IPO Process Hasn’t Evolved in Decades–That’s ‘Moronic’ – Inc.

“It’s moronic,” says Barry McCarthy, Spotify’s chief financial officer.

The Swedish music streaming company went public on the New York Stock Exchange in April 2018. Instead of an initial public offering, Spotify opted for a direct listing, meaning rather than issue new shares, the company started trading by letting existing shareholders sell their shares directly on the public market. It also meant Spotify didn’t raise a cent–all the proceeds went directly to the selling shareholders, such as early investors and employees. 

Now Slack is following suit. On Thursday, the company started trading on the New York Stock Exchange under the ticker symbol “WORK.” It is the first tech unicorn startup based in the U.S. to do a direct public offering (DPO) instead of an IPO. Its performance–whether a home run or a flop–could fundamentally change the way entrepreneurs think about going public and how they go about it.

It’s about time, too, according to McCarthy. Fundraising conditions for private businesses have changed dramatically in the past decade, he says, but initial public offerings have not. And while direct listings are not exactly new, he clarifies, they give more control over the process to the company and its founders.

Below, McCarthy, who spearheaded Spotify’s direct public offering, gives his take on the critical things you need to know about DPOs.

1. They’re cheaper.

The main difference between a traditional IPO and a direct listing is the lack of underwriters. In a traditional offering, investment banks like Goldman Sachs and Morgan Stanley agree to buy your shares at a discount and then pocket the difference when they sell them to their client base at your IPO price.

In a direct listing, you hire these banks as financial advisers to help you navigate the process. While neither option is cheap, DPO fees tend to be less expensive. Uber paid $106 million to its underwriters, while Spotify gave €29 million (about $32 million) to its financial advisers. Another benefit of having no underwriters? Because you’re not issuing a percentage of shares to the banks, existing shareholders won’t experience dilution when you start trading. 

2. You don’t raise money–but that’s not necessarily a bad thing.

Of course, since you are not issuing new shares, you don’t get any money when you go public. Instead, all the proceeds go to existing shareholders who decide to sell.

In Spotify’s case, McCarthy says, this wasn’t a downside. You can raise a bunch of money before going public–something both Slack and Spotify did–or do it six months after your direct listing, under better deal terms if your business performs well, he says. “It’s just a matter of timing.” 

3. You need to be ready to disclose a full year’s worth of financial projections. 

If you’re doing a direct listing, you have to be prepared to offer guidance about your financial performance for the full year, McCarthy says. “You can’t do it otherwise,” he notes, adding that companies doing a traditional IPO can usually “get away” without it because the underwriters’ analysts tell investors what to expect.

Which is another drawback to direct listings: Since there are no underwriters, there’s no guarantee their analysts will cover your stock. Investors use analysts’ research to help them assess a company’s performance. If they don’t know enough about you, they’re probably not going to buy.

In Spotify’s case, the company defined success as having at least 15 research analysts covering its stock, McCarthy says. “We had 15 analysts before we even traded,” he adds. “We had a scaled business people couldn’t afford to ignore.”

4. There’s no lockup period for employees.

In a traditional IPO, insiders are barred from selling their shares during the first six months of a company’s public life. It’s a mechanism required by underwriters to make sure there won’t be a barrage of people dumping their shares and sinking the stock price to the ground. Sometimes, it also means your stock could be trading below its IPO price by the time your employees and other shareholders are able to sell their stakes. Lyft and Uber, for example, are currently trading below their IPO prices. Their lockup periods expire in the fall. 

While there’s a risk that they could bring down the stock price by flooding the market with shares, employees can cash out on the first day of trading.

5. “Pop” gains for everyone. 

Banks underwriting an IPO price the stock with the goal of achieving the so-called “pop,” McCarthy says, which is market lingo for when shares trade above their IPO price on opening day. “It’s basically the fee that investors extract from investment bankers for their continuous participation in the deal flow,” he adds.

The result is that, as McCarthy wrote in an op-ed last August, “the system penalizes successful individual companies.” For example, online pet supply store Chewy went public last week at a $22 IPO price. The stock opened at $36 per share, however–a 64 percent uptick for IPO investors–but meaningless to the company’s overall raise. In other words, McCarthy says that when the IPO process works exactly as designed, companies end up leaving a lot of money on the table.

In a direct public offering, market forces dictate opening price, McCarthy notes. If a listing is successful right off the bat, selling shareholders–and not just a limited group of investors–enjoy big gains.

6. You’re going to have to grapple with a lot of uncertainty.

“The big unknown is how the stock is going to trade and whether there will be enough shares,” McCarthy says, referring to the pool of people willing to sell. “And whether there will be enough demand for those shares.”

You have to have done enough work to make sure there’s a liquid market, he adds, and hope that people will care enough to want to buy into a different process. Spotify, as a popular consumer product, was able to leverage its brand recognition and a solid business performance to drum up investor demand. In short, “people couldn’t afford to tune out,” McCarthy adds.

Slack might be a different story–while it’s well known among certain circles, its use case is limited to workplace environments. The company started trading at $38.50 per share, above the $26 reference price set by the NYSE on Wednesday evening. If the listing goes without a hitch, there’s a good chance other companies will be willing to adopt this process. “If it falls on its face,” McCarthy warns, “we won’t be talking about direct listings anytime soon.”

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Slack shares surge 48% over reference price in market debut

Slack surged 48.5% in its debut Thursday on the New York Stock Exchange in a direct listing rather than an initial public offering.

The stock, under the symbol WORK, opened at $38.50, nearly 50% above the reference price of $26 set by the NYSE on Wednesday night.

The pop puts Slack’s market cap at $19.5 billion. As of April, Slack was valued at nearly $17 billion on the secondary market, according to Forge Global, which matches private companies and their employees with investors. In its last financing round in 2018, Slack said it raised $427 million, which brought its valuation to $7.1 billion.

Slack is part of a slew of tech companies to go public this year including Uber, Lyft, Zoom, Pinterest, PagerDuty and CrowdStrike. But it is just the second large tech firm to pursue the unusual direct listing route in the past year and a half. Spotify surprised Wall Street with its decision to list directly onto the New York Stock Exchange last year.

In a direct listing, unlike an IPO, banks do not underwrite the offering, and no new shares are sold, so the company does not receive any additional money for operations. It’s simply a way for existing shareholders to get liquidity by registering their shares for sale on the public market. Plus, Slack doesn’t need to raise more money since it already has more than $800 million in cash on hand. Slack said it engaged Goldman Sachs, Morgan Stanley and Allen & Company as financial advisors and several more firms as associate financial advisors to assist it in the process.

While banks typically help determine pricing in an IPO, the NYSE set the reference price for Slack of $26 Wednesday night. The opening price for Slack’s Class A common stock was determined by the buy and sell orders collected by the NYSE from broker-dealers, according to Slack’s prospectus.

Like many tech companies, Slack debuted with a dual-class structure, with Class B shares holding 10 votes per share to consolidate voting power among its top shareholders. According to Slack’s prospectus, Accel is the company’s largest shareholder at 24%, followed by Andreessen Horowitz with a 13.3% stake and Social Capital at 10.2%. Slack CEO Stewart Butterfield owns an 8.6% stake and SoftBank holds 7.3%.

In an interview with CNBC’s Andrew Ross Sorkin ahead of the stock’s debut, Butterfield said Slack’s success foreshadows a change to email as we know it. Conventional email will be phased out in five to seven years, he said.

“Everyone will choose this,” Butterfield said of Slack, which provides a platform for public and private messaging channels.

Slack reported a net loss of $138.9 million on revenue of $400.55 million for the year ended Jan. 31. As of Jan. 31, Slack said it had over 10 million daily active users and saw its number of paid customers increase 49% year over year. Slack also has seen large growth among its highest-paying customers, those who pay over over $100,000 based on annual recurring revenue. The number of customers in that group was up 93% year over year compared with fiscal 2018, according to the prospectus.

Disclosure: Comcast Ventures, the venture arm of Comcast, is an investor in Slack. Comcast owns CNBC parent company NBCUniversal.

-CNBC’s Jessica Bursztynsky contributed to this report.

Subscribe to CNBC on YouTube.

WATCH: Slack tips and tricks to make you a messaging guru

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First Internet Bancorp: A New 6.00% Fixed-To-Floating Rate Baby Bond IPO



Introduction

Our goal is to present to you our IPO analysis for every new fixed-income security that enters the market and to find out if there is any trading potential. In this article, we want to shed light on the newest Baby Bond issued by First Internet Bancorp (INBK). Even though the product may not be of interest to us and our financial objectives, it is definitely worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B2 Filing by First Internet Bancorp – the prospectus. (Source: SEC.gov)

For a total of 1.4 million notes issued, the total gross proceeds to the company are $35 million. You can find some relevant information about the new baby bond in the table below:



Source: Author’s spreadsheet

First Internet Bancorp 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (INBKZ) pay a fixed interest at a rate of 6.00%. The new issue has no Standard & Poor’s rating but is expected to be rated “BBB-” by the less authoritative Kroll Bond Rating Agency. The new IPO is callable as of 06/30/2024 and is maturing on 06/30/2029. INBKZ is currently trading above its par value at a price of $25.55 and has a 5.59% Yield-to-Call and a 5.87% Yield-to-Maturity. The interest paid by this baby bond is not eligible for the preferential 15-20% tax rate. This results in the “qualified equivalent” YTC and YTM sitting around 4.65% and 4.81%, respectively.

Here is the product’s Yield-to-Call curve:



Source: Author’s spreadsheet

The Company

First Internet Bancorp is a bank holding company that conducts its business activities through its subsidiary, First Internet Bank of Indiana, an Indiana chartered bank (the “Bank”). The Bank was the first state-chartered, FDIC-insured Internet bank. The Bank offers a full complement of products and services on a nationwide basis. We do so primarily over the Internet and have no branch offices. We commenced banking operations in 1999 and grew organically in our early years by adding new customers, products and capabilities. In 2007, we acquired Indianapolis-based Landmark Financial Corporation. The acquisition merged Landmark Savings Bank, FSB, into the Bank. The Landmark acquisition added a small number of deposit customers, primarily from Central Indiana, to the Bank; more importantly, it added a turnkey retail mortgage lending operation that we could expand through our Internet platform. More recently, we have added commercial real estate (“CRE”) and commercial and industrial (“C&I”) lending services to meet the needs of high-quality, underserved commercial borrowers.

Source:
Company website | Corporate Information

Below, you can see a price chart of the common stock, INBK:



Source: TradingView.com

Currently, the company is paying a quarterly dividend of $0.06 per share on its outstanding common stock ($0.24 yearly dividend). With a market price of $21.42, the current yield of INBK is 1.12%. As an absolute value, this means it has $2.42 million yearly dividend expenses for the common.

In addition, with a market capitalization of $216 million, INBK is one of the smallest “Regional – Midwest Banks” (according to Finviz.com).

Capital Structure

Below, you can see a snapshot of First Internet Bancorp’s capital structure as of the time of its last quarterly filing in March 2019. You can also see how the capital structure evolved historically.



Source: Morningstar.com | Company’s Balance Sheet

With the newly issued 2029 notes, the total debt of the company becomes $564 million, that are senior to the company’s equity and preferred stock. This makes the Debt-to-Equity ratio at 2.61, which cannot be defined as a good number after the market capitalization coverage reaches only 40% of the debt.

Furthermore, we also want to add one more ratio, the Earnings-to-Debt payments. One can use EBITDA instead of earnings, but we prefer to have our buffer in what is left to the common stockholder. The higher this ratio, the better. From the income statement, we can see the company had a net income of $22 million for 2018 with $11 million paid as interest expense. So, here we have a ratio of 2.00, which indicates that there is enough buffer for the bondholders, and despite the quite high leverage, the cost of that leverage is quite low.

The First Internet Bancorp Family

There is one more series of subordinated notes issued by INBK: First Internet Bancorp 6.00% Fixed-to-Floating Rate Subordinated Notes due 9/30/2026 (INBKL)



Source: Author’s spreadsheet

INBKL also pays a fixed-to-floating interest, at the same rate of 6.00% before 09/30/2021 and then switches to paying a floating rate distribution at a rate of the three-month LIBOR plus a spread of 4.85%

The 2026 Baby Bond also doesn’t have a Standard & Poor’s rating, pays quarterly interest payments and is callable as of 09/30/2021. With the market price of $25.80, INBKL has a Yield-to-Call of 4.79% and Yield-to-Maturity of 5.58%, compared to the 5.59% YTC and 5.87% YTM of the newly issued baby bond, which means the newly issued security has a slightly better Yield-to-Worst with a yield spread of 0.8% between the two securities. It should be added that this comes at the price of three years later call date. Personally, I don’t find the 4.79% Yield-to-Call of INBKL as bad, as it is the return for only 2 years hold. What’s more, if it doesn’t get redeemed by the company, with the current three-month LIBOR rate of 2.38, INBKL will increase its nominal yield to 7.23% and will become even more appetizing.

In addition, I want to compare the older issue with the fixed-income securities benchmark, the iShares Preferred and Income Securities ETF (PFF). On the following chart, the close correlation and the slight outperformance of INBKL over PFF can be seen.



Source: TradingView.com

Fixed-to-Floating Rate Baby Bonds

Since they are a great rarity, in this section, I want to make a comparison between the new IPO and the all other baby bonds that pay a fixed-to-floating interest rate.

  • By Years-to-Maturity and Yield-to-Maturity



Source: Author’s database

Since after the call date they all change their nominal yield, this chart may be misleading. That’s why the best way to compare the group is by their Yield-to-Worst (equal to their Yield-to-Call). This is a much more plausible Yield curve.

  • By Years-to-Call and Yield-to-Call:



Source: Author’s database

The new IPO is located at the top of the chart, meaning it has the best Yield-to-Worst from the group. However, together with INBKL, they are the only ones that are not rated by S&P. Except for AQNA and AQNB, the rest of the baby bonds carry an investment grade rating.

  • The Full List



Source: Author’s database

Special Event Redemption

The Notes may not be redeemed prior to June 30, 2024, except that the Company may redeem the Notes at any time, at its option, in whole or in part, subject to obtaining any required regulatory approvals, if (I) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the Notes for U.S. federal income tax purposes, (II) a subsequent event occurs that precludes the Notes from being recognized as Tier 2 capital for regulatory capital purposes, or (III) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended, in each case, at a redemption price equal to 100% of the principal amount of the Notes plus any accrued and unpaid interest through, but excluding, the redemption date.

Source: FWP Filing by First Internet Bancorp

iShares Preferred and Income Securities ETF

The main benchmark, PFF, which is the ETF that seeks to track the investment results of the S&P US Preferred Stock iShares Index, is in the process of changing its investment objective. The fund is expected to change the underlying index, passing through a Transition index (“ICE Exchange-Listed Preferred & Hybrid Securities Transition Index“) during the period from February 1, 2019, to October 31, 2019, and after that, will track the “ICE Exchange-Listed Preferred & Hybrid Securities Index“. The requirements for an addition of the New Index are much likely the same as the old one, with the difference being that the New Index will also include notes. However, the market capitalization of only $35 million is much less than the $100 million needed for the new IPO to be included in the PFF holdings.

Conclusion

As fixed-income traders, we follow every preferred stock or baby bond which is listed on the stock exchange. As such, the newly issued baby bond by INBK is no exception, and we always share the homework we do with the public. It is not necessary for the IPO to be an arbitrage and a bargain, but in many cases, the new security happens to be better than the ones already trading on the market.

The company ratios are satisfactory. INBKZ gives better YTW than its brother baby bond, INBKL, and also gives better returns than the rest of the fixed-to-floating rate baby bonds. However, if I have to choose, at these price levels I like INBKL instead, as it returns 4.79% for 2 years to call date, and will give a lot more if the company doesn’t redeem it. So, in the worst-case scenario, 4.8% is not bad at all. However, its purchase may be difficult due to the low volume and lack of bids and offers, while the new bond is expected to be more liquid at least at the beginning.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The Slack IPO Is Almost Here, and It’s Going to Be a Big, Big Deal – Barron’s


Photograph by Andrew Harrer/Bloomberg

OK, here we go.

On Thursday morning, Slack Technologies stock is going to list on the New York Stock Exchange with a direct public offering, making it immediately available for trading.

As I wrote in a piece for the magazine, Slack is going to have about 600 million shares outstanding, and is likely to be rewarded with a rich multiple that could drive its initial valuation to $20 billion or more. That would give the company a valuation of about 33 times revenue at the top of the $590 million-$600 million range Slack is projecting in revenue for the fiscal year ending January 2020.

That kind of valuation is going to hard to sustain, especially as the company’s growth rate decelerates. But there is obviously widespread enthusiasm for Slack and its prospects, which potentially could take the stock up to the ethereal heights where Zoom Video Communications stock (ticker: ZM). Zoom shares are trading at about 50 times forward revenue. Not earnings—revenue.

SharesPost, a marketplace for private-equity transactions, published a report on Slack that dives into the details of Slack’s business and capital structure. Slack has raised $1.36 billion to date in 13 venture capital rounds, most recently a $427 million round in August 2018 that valued the company at $7.1 billion. The largest investors include: Accel, with a 23.8% stake; Andreessen Horowitz, at 13.2%; Social Capital, at 10.1%; and SoftBank’s Vision Fund at 7.3%

SharesPost points out that Slack estimates its addressable market at $28 billion; projected revenue for the current year would suggest Slack has captured about 2% of the market so far. But that also hints that at a market cap at the high end of the possible—say in the same range as Zoom—the stock could be trading for 1x its total addressable market, or TAM. You would be hard-pressed to find many stocks valued that way.

The SharesPost report tries a couple of ways to triangulate towards an appropriate valuation for the stock—other enterprise initial public offerings, recent enterprise-software M&A activity, publicly traded enterprise-cloud software plays—and comes up with a range of values, most of them below where the stock would trade at an opening price equal to the last private market trade at $31.50. Since the listing lacks the trappings of an IPO, like a road show and institutional traders collecting indications of interest—the stock could trading wildly when it opens tomorrow.

G.P. Bullhound, a London-based M&A advisory firm, asserts in a research note that Slack stands to be the most disruptive company in enterprise software since
salesforce.com

(CRM)—they think Slack is on a path to reach a $50 billion market cap by 2025. “Slack exhibits a rare combination of highly recurring revenue, very low churn, viral growth and extremely high engagement—taking the best of both worlds, enterprise [software as a service] and instant messengers,” the report says. The report notes that Slack reached $100 million in annual run-rate revenue in under three years—less than half the time of the average cloud software company.

Editor’s Choice

To get to their long-term valuation view of $50 billion-plus, G.P. Bullhound applies an enterprise value/revenue multiple of 12 times projected revenue for the January 2025 fiscal year of $4.2 billion. Declining to get too specific, the report says Slack stock is likely to priced “significantly higher than the last private round,” to state the obvious, adding that “more importantly we see significant upside potential in the years to come.”

The interesting question is whether a large slice of the potential valuation is going to realized on the first day of trading.

The New York Stock Exchange is expected to issue a “reference price” for Slack shares at some point Wednesday evening based on an estimate of investor demand for the shares. In the only other recent example of a direct listing, the NYSE set a reference price on
Spotify Technology

(SPOT) of $132, which as it happens was right around the highest previous private market transaction in Spotify shares at $131.88. In Spotify’s case, the stock then opened 25.6% above the reference price, at $165.90, and then ended the first day of trading at $149.01. The stock is now trading at around $146.

If the pattern holds, Slack could be priced close to its previous high private market trade at $31.50, and then open higher. One other note: don’t expect the stock to trade right at the open on Thursday—it could take a few hours before trading actually starts.

Write to Eric J. Savitz at eric.savitz@barrons.com

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Beyond Meat is now larger than 80 S&P 500 companies, but IPO euphoria might not last – CNBC

Beyond Meat has blown up.

Since going public in early May, the stock has raced nearly 600% higher, taking its market cap above $10 billion. The plant-based meat company is now larger than 80 S&P 500 companies, including Macy’s, Xerox and Mylan.

While Beyond Meat is by far the market’s biggest IPO success story this year, it’s not the only one. Other recent debuts, including Zoom Video, Revolve Group and PagerDuty, have blasted higher since their floats.

After such a massive run for these companies, Miller Tabak equity strategist Matt Maley is growing worried a top is forming in the hot IPO market.

“There’s no question there is froth in the IPO market and that could continue for a while. But there are reasons to be concerned,” said Maley on CNBC’s “Trading Nation ” on Tuesday. “The number of stocks that were unprofitable in the 12 months leading up to their IPO is back to levels that we saw back in the bubble of 2000.”

Some of the highest-profile IPOs this year, such as Beyond Meat, Lyft and Uber, are companies without profit. Beyond is not projected to generate quarterly income until the third quarter of 2020, according to FactSet estimates.

“Also, the IPO ETF has outperformed the S&P by quite a bit over the last few years. It’s up over 100% since early 2016, which is up almost twice as much as the S&P,” said Maley.

The Renaissance IPO ETF, which holds stocks that have gone public within the past two years, is up nearly 38% this year, while the S&P 500 has added 16%.

“But, the thing that concerns me the most is that a lot of these companies are not brand-new companies like they were back in the last bubble. They’re companies that have been around for quite a while, and when smart people sell their company or take them public it’s usually a sign of a top,” said Maley.

For example, Goldman Sachs had its IPO in mid-1999 before the bubble burst a year later, says Maley. Similarly, he notes Blackstone debuted in 2007 before the financial crisis.

Beyond Meat, in particular, could soon come back down to earth after its mega rally, says Nancy Tengler, chief investment strategist at Butcher Joseph Asset Management.

“I worry about valuation,” Tengler said during the same “Trading Nation” segment. “At some point, enthusiasm will wane [for Beyond] and this will be valued just like any other food company, and it is trading at an exponential multiple to sales compared to the rest of the groups. So, I’m wary.”

On a price-to-sales ratio, Beyond Meat trades at more than 35 times sales, while Hormel, General Mills and Kellogg’s each trade at less than three times sales.

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Don’t say ‘IPO’: What to know about Slack’s direct listing – Yahoo Finance

Slack, the workplace messaging platform, is taking an unusual path to the public markets.

Read the latest financial and business news from Yahoo Finance

Follow her on Twitter: @emily_mcck” data-reactid=”66″>Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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