Slack, the workplace communication and team collaboration tool, has become so ubiquitous in chatty offices across the world that its name has become a verb. Now the company behind the cloud-based chat platform, Slack Technologies Inc., is expected to join the #ipo channel in the next few months. Slack will debut on the New York Stock Exchange, trading under the ticker symbol SK.
Slack me the details
In a traditional initial public offering, an investment bank plays middleman and lines up a predetermined number of shares to sell on the public stock exchange.
Slack is doing things differently: It’s bypassing the Wall Street middlemen and doing a direct market listing. With a direct listing, company insiders — Slack employees who were granted shares and private investors who backed the company in exchange for a stake in the business — sell their stock directly to new investors.
This method introduces an additional layer of risk for wannabe Slack shareholders:
- There’s no underwriting bank to establish a price range for the stock before the opening bell. The share price investors see will be based on supply and demand. According to the company’s registration to go public, Slack shares traded between $8.37 and $23.41 in private transactions during the fiscal year that ended Jan. 31.
- It’s unclear how many shares will be offered. The company’s initial filing indicates Slack will sell a maximum of $100 million in shares, although that’s likely just a placeholder amount until the prospectus is finalized.
Here’s how to decide whether Slack fits into your investment portfolio and how to buy Slack shares once they hit the public market.
1. Do your research
Researching a stock means getting familiar with the company’s inner workings — its sources of revenue, levels of debt and what management sees as the biggest opportunities and risks.
Everyday investors have access to these insider details via Slack’s Form S-1, which it filed with the Securities and Exchange Commission. Dig in and you’ll see that the company’s revenue in the fiscal year that ended Jan. 31 was $400.6 million (up from $105.2 million in 2017). The company posted a loss last fiscal year of $140.7 million, which was an improvement from previous years.
Slack also has a lot of cash on hand — roughly $841 million — which may be why company leaders don’t feel pressure to raise more capital by selling additional shares to the public, as typically happens in the traditional IPO process.
In addition to the financials, Slack provides details about its customers (more than 88,000 organizations pay a subscription fee and an additional 500,000 use its free plan), competition (Microsoft’s Teams chat client for Office 365 users) and biggest partners (Google, Salesforce, Atlassian, Oracle).
Before the Slack IPO takes place, be sure to check SEC.gov regularly for the latest registration statement since companies often update information multiple times after the initial filing.
» Learn more: How to research stocks
2. Choose the best account for your Slack shares
You’ll need a brokerage account to buy Slack stock. In that account you can buy not only individual stocks, but also mutual funds and other investments. If you don’t already have one, now’s the time to open one so you’re ready when Slack is available. Here are our top picks:
It’s easy to open an account — we have a full guide to brokerage accounts here — and fund it by transferring money from your checking or savings account. Keep in mind that it may take a few days for the money you deposit in your account to be available to invest.
3. Decide how much money to commit
Deciding how many Slack shares to buy isn’t just about how many you can get your hands on. It’s also about how much risk you’re willing to introduce to your investment portfolio. As with most things in life, it’s all about balance.
Within the part of your portfolio that you invest in the stock market, we recommend devoting just a small portion to individual stocks: 10% or less. The remaining 90% should be in low-cost index mutual funds, which invest in many stocks within a single fund. Under that guideline, if you have $5,000 to invest in stocks, no more than $500 would be earmarked for purchasing individual stocks like Slack.
Why do we skew so heavily toward index funds? An index fund buys you a diversified mix of public companies and ensures that your portfolio keeps pace with the broader stock market’s returns. (Here’s more on how to invest in index funds.)
Investing in individual stocks, if done well, can enhance your overall returns. But it also adds volatility to your portfolio. The stock price of even the most established companies bounces around daily. With an IPO, shares can swing wildly, especially in the early days.
» More advice on how to build an investment portfolio
4. Place your Slack stock order
Once you’re ready to buy, your broker will ask you to choose between a market order (“buy this stock right now at the prevailing market price”) or a limit order (“buy this stock only if it’s available at the price I’ve specified”). There are pros and cons to each:
- A market order will be executed at the best possible price at the time of your trade. With a stock on the move, you could end up paying more (or, if you’re lucky, less) than what you were quoted when you placed your order.
- A limit order provides some predictability in what you pay since you set the price and the transaction goes through only if the stock hits that price or below. The downside: Your order may not be fully executed (or go through at all) if Slack’s stock doesn’t achieve that price before the order expires.
Remember, you don’t have to make a big financial commitment all at once. You can ease your way into buying Slack stock by spreading your purchases out over time. That’s a good way to control your exposure to volatility, and a smart approach to buying any investment.
For more details on how to place a stock order, see this in-depth guide for how to buy stocks.