Just because you use the company's products does not mean you should buy your shares. For example, you may have heard about Lyft, but if you invest in your shares when it becomes public on March 29, your share will fall by 9%.
As I wrote on April 11, Lyft and its biggest competitor, Uber, are in a bad industry: low barriers to entry and huge flows of private capital in the industry mean that competitors lower prices to obtain the market. Share, even if the driver keeps paying.
I think it's better that you invest in companies that have figured out how to make a profit and keep growing quickly before going public. As I wrote in April, a typical example is Zoom Video Communications, which provides an excellent example of how to build a scalable business model. Since the initial public offering on April 18, Zoom shares have increased by 65%.
Now in San Francisco, Slack Technologies, a commercial communications service that provides employees with access to a wide range of information, is on the so-called direct list. I use Slack's product, but I do not like it. (Slack says in the April 20 prospectus that many people do this).
However, my view of my product is not one of the four reasons why I avoid it.
(I do not have financial interests in the mentioned values).
Before considering the reasons, let's look at the way Slack appears. Like Spotify, the price of its shares is $ 139, and the price at which they are listed; Slack is in the market.
Direct listings are very different from the most common initial public offerings (IPO). In an initial public offering, the company pays a 7% commission to the bank that executes the process.
To this end, the bank held a traveling exhibition that presented the company to investors, which organized the buyers before the shares continued, helping to establish prices for the first agreement and preparing to buy shares to create a great first place. He hopes to find the right balance between creating a lost fear among the general public without leaving too much money for the company.
The last point implies one of the key differences with the direct list. Slack will not sell new shares, so the direct listing revenues will be paid to the employees and investors who sell the shares. In addition, there is no roadshow for direct listing, and the pressure on pop music on the first day is even greater.
Slack pays less. As reported by Bloomberg, "Goldman Sachs, Morgan Stanley and Allen & Co. accounted for about 90% of the $ 22 million of the 10 consultants."
Instead, Citadel Securities and Morgan Stanley will talk to buyers and sellers, and once they are willing to buy and sell, the price difference will be reduced to $ 1 and the shares will start trading.
Unlike an initial public offering that limits the number of shares sold initially, there is no limit to the number of shares that can be sold. This creates the risk of not having enough buyers, creating the "Warning Bell" that the Wall Street Journal calls.
At the same time, the reference price, the guide for the shares that can start trading, is $ 26. According to the Wall Street Journal, the price is $ 15.7 billion for Slack, which is 120% higher than the $ 7.1 billion that the recent private capital raised in the Slack of 2018.
According to the Wall Street Journal, Spotify's direct reference price was $ 132 as of April 2018, and its share purchase price was around $ 149 at the close of the first day after 14 months.
This brings us four reasons, you must resist the temptation to buy Slack stock today.
The growth of your income is slowing down.
Although Slack's revenues increased 82% in 2018, they reached 400 million, 000,000,000,000,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0 0.0,0,0. The company's tax reduction policy is tens of thousands of dollars. According to its prospect, its revenues for the first quarter of 2019 increased 67% to $ 134.8 million. Barron said that Slack is leading investors to expect growth rates of between 47% and 50% in 2019.
Slack has a business model called freemium that only a few users pay. In fact, according to the prospect, there are at least three users in more than 600,000 organizations, but in the quarter ended April 30, only 95,000 users paid for the service, of which 645 had a recurring annual income of more than $ 100,000. .
This is very unprofitable.
Slack has almost no chance to make a profit. Slack lost $ 139 million in 2018, and in the first quarter of 2019, its net loss was $ 38.4 million, or 28% of revenues. Slack said: "We have a history of net losses, we expect to increase operating expenses in the future and we may not be able to achieve it and, if so, we can maintain profitability."
As I wrote in the last book, "Scaling Your Startup," there are four extension phases, and now many companies are in the market, skipping the second phase of extensions: creating scalable business models. They went from the first stage, winning the first batch of clients, to the third stage, running the liquidity.
Slack is clearly one of the captains of the second step. Through the contract, as I wrote in April, Zoom did not omit the construction of a scalable business model; instead, as it got bigger, he realized how he was in sales, marketing, services and product development, etc. Increase efficiency in key processes while selling more to existing customers.
Slack's ability to build scalable business models can be challenging, while spending a lot to prevent its revenue growth rate from further diminishing.
It is burning in cash at a fast speed.
In 2018, Slack burned $ 97 million in cash and $ 34.2 million in cash in the first quarter of 2019.
To be fair, Slack's balance has $ 792 million in cash, but given its high rate of cash consumption, it seems to me that direct inclusion instead of the IPO, which will allow you to raise more money, is not the most important thing. Smart choice
Your corporate governance is not friendly to shareholders.
If you buy Slack and you do not like the way the CEO runs the company, then you have no luck.
This is because, according to its prospectus, the dual structure of its ordinary shares will focus on 65.6% of the control of voting in the hands of executives and directors.
To be fair, this concentration may have decreased since the April prospect. "To sell shares, the existing shareholders convert the B shares into 10 shares per share, one share per share, About 194 million shares were converted before the direct quotation, approximately 38% of the 504 million shares", according to Wall Street The newspaper "reported.
However, according to the prospect, Slack CEO Stewart Butterfield has "[concentrated] voting rights." This will allow him, not the investors who traded the shares today, to choose directors, sell the company and merge with other companies.
Butterfield, a philosophy student with a master's degree in philosophy from the University of Cambridge, has no experience in running a public company. He was the general manager of Yahoo's photo sharing site, Flickr. Following the acquisition of Yahoo from the Flickr developer, Ludicorp Research and Development, he served as CEO.
If Slack can exceed the expectations of quarterly growth of the investors and be profitable, then this could be a good investment.
The first can happen, but I do not think it's profitable. Do not buy stocks in Slack.
