MKM: Slack Is Worth $55 Per Share

Ahead of Slack's scheduled initial public offering Thursday, MKM Partners estimates the stock should be worth $55 per share, or around $20 billion.

The Analyst

Rohit Kulkarni commented on Slack's planned IPO in a Monday note. 

The Thesis

Slack's financial disclosures and guidance in its regulatory S-1 filing suggest fiscal 2020 revenue should grow 52% year-over-year to $610 million and another 42% the following year to $868 million, Kulkarni said in the note. (See his track record here.) 

Applying a multiple of 24 times EV/revenues one year forward points to an enterprise value of $20.8 billion, the analyst said. With an estimated 368 million shares outstanding and the company's $600 million in net cash, the stock should be valued at around $55 per share, he said. 

Slack has three primary positives as an equity, Kulkarni said: 

• A predictable growth profile.
• An expanding list of ecosystem partners.
• The mix shift of customers paying more than $100,000 per year rose from 22% in 2017 to 32% in 2018 and 40% in 2019.

Slack has an equal number of risks, the analyst said: 

• An "unclear" market opportunity, as Slack created its own new category of software.
• The company will likely continue burning cash until 2021.
• Class B shareholders hold disproportionate voting power, led by the CEO, whose stake represents 17.8% of all votes.

Related Links:

Slack's Direct Listing: The Pros And Cons

Slack To IPO Through Direct Listing On June 20

Photo courtesy of Slack.