
Slack Is Going Public Without an IPO – How a Direct Listing Works - srameshc
http://fortune.com/2019/06/20/slack-stock-ipo-dpo-direct-listing/
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sixhobbits
> In an IPO, SEC rules typically restrict shareholders from selling shares
> until six months after the offering. A direct offering makes it much easier
> for employees and early investors to cash out as soon as the first day of
> trading. This can be a big help for investors in companies that have waited
> to go public, which many of the best-known tech companies have been doing
> for years

Is it wrong to interpret this as other people expecting the bubble to pop soon
and wanting to pass the bag sooner rather than later?

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cdumler
That is possible, but in theory there has been due diligence to verify the
company as an on-going concern. Normally the goal of going public is to let
those who took the risk in the beginning to get a payout, given that they have
had their funds locked up all this time. Those who choose to invest now are
taking the risks for access to future returns.

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asr
Normally the point of an IPO is to raise cash.

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Zarathustra_
No, it used to be the point. Now a large portion of the point is to cash out
existing investors. I do not claim it is the _sole_ purpose, and this is
largely true among unicorns, but it is certainly a shift. Look at Facebook:
they kept raising huge series of private equity.

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adventured
That is only true with a very small, very richly valued group of technology
stocks. You're talking about a few dozen companies max per year. Using that
small group to extrapolate a claim that therefore IPOs are now primarily used
to exit shareholders, is clearly a dramatic overreach.

Pharma & biotech companies as one example (the market has seen far more IPOs
in that sector over the last year than it has large tech companies using their
IPO as an exit), are still very frequently doing IPOs so they can raise
operational cash to burn and to use their public stock for funding and
acquisitions later.

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youeseh
I know this is an apples and oranges comparison, but I just find it
fascinating how value is derived in society.

The current stock price, Slack's market cap is half of Tesla's. And, a lot of
people think that Tesla is overvalued.

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georgeecollins
It is really hard to make a financial argument for the value of a stock that
makes no profits and is has a low to negative book value. Clearly there are
valuable companies in this category such as Amazon and Facebook early in their
days as public companies. But trying to figure out what they might be worth
someday is an exercise in predicting what the future of the world might be. It
is not like making a calculation on the back of an envelope.

So to the OP, yeah I totally agree. It's fascinating.

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mruts
Hypothetically, a companies value should be a sum of it’s expected infinite
cash flows divided by the discount rate.

If a company lost $10 one year, $5 another, and broke even the third a guess
of making money the fourth year is probably more reasonable than a guess of
making the average, even with a marginal book value.

Therefore, I don’t think it’s that surprising that companies losing money are
still worth a lot.

This isn’t always a reasonable way to think of things, though. It’s important
to consider the actual realities of the business. For Slack, I think it’s
largely fine. There really shouldn’t be a hard constraint preventing them from
making shit tons of money.

Uber and Lyft are a different story. I have a hard time imagining a situation
in which those companies will ever be profitable, even with self-driving cars,
save one buying out the other.

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georgeecollins
Discounted cash flow analysis is not what is going on here. Looking at it
historically, FB went public with a valuation that its web business at the
time could never justify. If you assume people who bought at the price were
making a rational calculation, they weren't valuing the business cash flow,
they were valuing something else Facebook had. A technical capability, the
management, a brand, the things that let them extend their business to mobile
messaging and acquire WhatsApp and Instagram. What happened wasn't just cash
flow growth. Ditto for Amazon and Google.

I think that is what is going on with Uber. Their current core business will
never earn enough to justify their valuations. Investors assume it will add
new divisions and capabilities.

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pimlottc
> The ticker symbol? WORK.

I’m curious how symbols are assigned. Most companies have symbols that are
similar to their names. Can companies just choose anything they want? Or do
you have to be a big player with connections to score a vanity symbol like
this one?

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busymom0
[https://slate.com/news-and-politics/2003/09/how-do-
companies...](https://slate.com/news-and-politics/2003/09/how-do-companies-
pick-ticker-symbols.html)

> “The ball’s pretty much in the company’s court, as long as its choice isn’t
> already in use and won’t offend anyone’s delicate sensibilities. The NYSE
> requires that companies submit their symbol requests at least 20 days before
> they mail out notification to shareholders and that they list a first,
> second, and third choice. The exchange rarely gives a thumbs-down to the
> preferred option. One notable rejection occurred in 1992 and involved
> Furr’s/Bishop’s Inc., a Texas-based cafeteria operator that wanted to
> disassociate itself from its floundering holding company, Cavalcade Holdings
> Inc. But the NYSE denied the company’s application for the symbol FBI, on
> the grounds that it might cause confusion with a well-known law-enforcement
> agency, and Furr’s/Bishop’s was forced to remain CHI on the board. (The
> beleaguered company, later delisted from the NYSE, eventually changed its
> name to Furr’s Restaurant Group—FRRG on the ignominious pink sheets—and has
> since filed for bankruptcy.)

Some companies select cheeky symbols, rather than mere acronyms. The father of
the trend may be Southwest Airlines, which was first listed as LUV in 1971—a
nod to its origins at Dallas’ Love Field. Other semi-clever tags include BID
for auctioneer Sotheby’s, FUN for amusement park operator Cedar Fair, and BUNZ
for deli chain Schlotzsky’s. It’s a lot easier to come up with something witty
if you’re listed on the Nasdaq, as that exchange allows symbols to be up to
five letters long; the NYSE sticks with a 3-letter limit.”

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supremerumham
Another example of a name and symbol being different is Salesforce with a
symbol of CRM

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coredog64
Sun changed their identifier from SUNW to JAVA near the end.

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BrandonM
@track_me_now: you seem to be shadowbanned even though your comments seem
reasonable to me. You might want to message the mods.

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dcolkitt
The primary reason for doing a direct listing is because you don't need to
raise capital. It's mostly reserved for the case where you want your pre-
existing shareholders to access the liquidity of the public markets.

In contrast, if you're actually going public to raise more capital, direct
listings are a lot riskier. Basically the point of the IPO, and paying
investment banks huge fees, is to select and handhold the new investors.

The investment bankers perform a lot of work around actually getting supply to
meet demand. They're doing roadshows in front of potential investors, getting
feedback on the best way to present the company, trying to determine what the
market would price the company, etc. They're also making some effort to curate
a higher-quality investor base, i.e. those who actually believe in the
company's vision and aren't likely to flip the shares for easy money or sell
out at the first sign of trouble.

The reason for the traditional IPO pop mostly has to do with compensating
these types of investors for making a commitment and taking a risk on an
unproven stock.

Now if it's definitely debatable whether what the company pays in the form of
investment banking fees and systematic underpricing is actually worth it. But
the point is that for a company like Slack, which isn't raising capital, it's
almost certainly not worth it. On the flip side the success of this particular
doesn't necessarily tell you anything about how much value a traditional IPO
does or doesn't add.

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satya71
50% pop, not bad. Underwriters got $0 of that pop, very nice for whoever
pounced early.

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nodesocket
Sure it's up 50% from the "reference price", but publicly for you and me
retail investors we had NO chance at that gain.

You'd have been super lucky to get some shares at where it opened at $38.88
(12:08 EST). It immediately shot up to daily high of $41.95 which is most
likely where retail trades would have executed at (assuming you used a market
order, which you never should). Always buy with limit orders. See the
following screenshot of the graph of today[1] of $WORK for reference.

[1] [https://imgur.com/a/ULlMHMl](https://imgur.com/a/ULlMHMl)

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FartyMcFarter
> assuming you used a market order, which you never should).

Yeah I don't get why market orders even _exist_. If you're doing something
that usually costs thousands to millions, is it ever a meaningful benefit to
saving a click or two and a few keystrokes?

If my broker had an option to remove my ability to do market orders (sell or
buy) I would immediately enable that.

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derefr
Would it still be called a market order if you were denominating the order in
dollars-converted-at-moment-of-sale? I.e. "buy however many shares I would get
for $500, I don't care how many or few that is at the time." That seems more
useful, and still caps your losses, while offering something limit orders
don't.

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tanderson92
This is still a market order (ignoring rounding).

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el_duderino
It's strange that a site like Fortune (in 2019) still doesn't support or
enforce HTTPS.

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_eht
*went

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zone411
[deleted - was incorrect]

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tc313
It’s not raising any money in this offering; it’s just letting existing
investors sell their shares to the market.

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BubRoss
Is each slack user really worth $1,600 USD ?

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imjk
As a counterpoint, do you think Slack has a growth rate of zero?

