Jun 23, 2019 - Technology

Slack proves that direct listings WORK

Slack logo.

Illustration: Aïda Amer/Axios

Slack went public this week via the most elegant and efficient way possible — a direct listing. The opening auction of the stock cleared around noon on Thursday, at a price of $38.50. It then traded smoothly, under the ticker symbol WORK, for the rest of the week within a pretty narrow range between $36.50 and $42.

Why it matters: No one received preferential treatment. There was no possibility of the kind of scandalous behavior whereby banks like Goldman Sachs receive millions of dollars' worth of kickbacks from clients they place into hot IPOs.

  • Slack insiders sold $1.8 billion of stock in the opening auction, largely because the price was so high. In an auction system, sellers of stock can increase the amount they want to sell as the price goes up. Slack saw the perfect combination of a high stock price with a high volume of shares traded.
  • Traditional IPOs are "archaic and nepotistic," as venture capitalist Bill Gurley says. The direct model allocates stock to the highest bidders, which is much more logical.

What to watch: Slack and Spotify — which also opted for a direct listing — didn’t raise any new equity capital when they went public. But they can do so at any time, now that there's a deep and liquid market for their stock. And future IPOs might also use an auction system to allocate stock, a bit like Google did in 2004.

The bottom line: No matter how plugged in to the markets they are, IPO bankers will only ever be able to talk to a small subset of investors before they take a company public. The Slack auction — just like the Zoom IPO before it — shows just how unexpectedly large the bid can be when a hot, fast-growing company hits the market. It's silly for companies not to take full advantage of that upside.

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