A First Look At Slack's S-1 Filing For Its Impending Direct Listing

Slack filed to list publicly today. The company’s S-1 document was expected, coming right on the heels of Uber’s pricing notes for its own IPO. It’s a big day for unicorn liquidity.

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The well-known productivity and communication software provider Slack will not sell shares in its debut, as anticipated. We’ll have more later today on both offerings (on Crunchbase News and on Equity, our venture capital podcast with TechCrunch), but for now, let’s ground ourselves in Slack’s results.

Is this company worth the $7 billion and change like private market investors claim? Or is it worth far more, as secondary private markets indicate? Here are the figures.

Growth, Losses

Slack’s S-1 paints the picture of a quickly-growing SaaS business with strong gross margins, but stubborn losses. How far Slack is from profits will disappoint some; Slack’s rise has long been rumored to be more efficient than normal.

The company’s fiscal year ends on Jan. 31. We’ll start with the oldest period detailed, and move forward to the most recently reported fiscal year:

In the fiscal year ending Jan. 31, 2017, Slack put up revenue of $105.2 million, leading to a net loss of $146.9 million.
In the fiscal year ending Jan. 31, 2018, Slack grew just under 110 percent to $220.5 million in revenue, leading to a net loss of $140.1 million.
In the fiscal year ending Jan. 31, 2019, Slack grew 81.6 percent to $400.6 million in revenue, leading to a net loss of $138.9 million.

Summing, Slack has managed to slowly chip away at its net losses while greatly expanding its revenue. This means improved net margins. But Slack remains far from profits. Why? Sharply rising operating costs stemming from sales and marketing expenses (from $140.2 million in the year ending Jan. 31, 2018, to $233.2 million in the year ending Jan. 31, 2019) and general and administrative costs that doubled over the same period.

Slack’s gross margins are good (85.2 percent, 88.0 percent, and 87.2 percent in its last three fiscal years), and its revenue growth has been very strong. But the company did not manage to control costs enough to get much closer to GAAP breakeven over three fiscal years.

And Slack is far from generating cash. Indeed, the company’s free cash flow worsened from -$57.7 million in the fiscal year ending Jan. 31, 2018, to -97.2 million in the fiscal year ending January 31, 2019.

It’s Still Quite Valuable

Our above notes are slightly out-of-whack compared to what the market expected regarding the company’s results. That’s fine. Investors financed Slack’s growth and the company is cash-rich and quickly growing.

May we all be so unlucky.

But what Slack is worth is hard to calculate. Slack’s most-recent quarter saw $122.0 million in revenue, $43.4 million operating losses, and a slimmer $34.6 million net loss. The company added around $16 million in revenue from the sequentially-preceding quarter. That’s wildly impressive for a company of its size.

And the company had more “Calculated Billings” in the quarter ($173.7 million) than it had in any period reported by nearly $50 million. That’s staggering and indicates that Slack has plenty of growth ahead of it.

That helps Slack’s valuation math. At its prior valuation of $7.2 billion, it’s worth about 18x times last year’s revenue. Using its most recent quarter to set an annual run rate ($488 million), Slack is worth 14.8x times the revenue result. If you presume Slack puts up $700 million in its fiscal year ending Jan. 31, 2020, the company is still worth more than 10x the revenue figure.

Push Slack’s valuation higher and all those multiples rise. Slack is an impressive growth shop, so how far its valuation stretches will help us understand the public market’s appetite for growth shares.

Illustration: Li-Anne Dias.