The Single IPO Worth Buying

I warned you this was going to happen months ago.

And sure enough, now it has.

The stock market performance of venture capital-backed IPOs has gone from sizzling… to fizzling. Uber, Lyft and Chewy are all down 30% or more.

After rocking in the first half of the year, IPO stock performance in 2019 is now the worst it has been since 1995.1

But…

It’s not just the overvalued stocks that have taken a beating.

There are also some very good companies that have IPO’d this year and have had their stock prices undeservedly trashed in this sector-wide meltdown.

Last week, I promised that I would deliver to you one of these “babies” that had been thrown out with the IPO bathwater. Today, that is exactly what I’m going to do.

The Market Should Cut This Stock Some Slack

Founded in 2014, Slack Technologies (WORK) is a company that was born out of need.

The founders of the company could not find an office communication system that matched the needs of their business, so the built one themselves.

It worked so well they turned the technology into a business.

After going public in June of this year, shares of Slack have steadily dropped from $42 all the way to $25, where shares trade today.

For investors who bought shares of Slack right off the hop… this is bad news.

But for investors who are taking a look at Slack for the first time right now… this is an opportunity.

Slack is a young and rapidly growing business.

Simply put, Slack’s product is a next level business communication solution that will replace e-mail.

If you asked a Slack user what the technology does, they would describe it as an office messaging tool — but it is so much more.

By using Slack, employees can share files, communicate in real-time with multiple co-workers across the globe, and establish a project-specific communication channel.

Think of it this way…

An e-mail is like passing notes back and forth, while using Slack is like having everyone sitting in the same room having an open conversation. Slack unleashes the power of collaboration and teamwork.

Cashed Up and Growing Really, Really Fast

We don’t need to guess whether there is a market for Slack’s technology.

All we have to do is look at the rapidly growing revenue line in the company’s financial statements.

Slacks Surge

Slack’s revenues are growing consistently near 80% on a year-over-year basis. And it’s showing no signs of stopping anytime soon.

The beauty of a software-as-a-service (SAAS) business like this is that once you are adopted by a company, they keep paying you year after year. The numbers prove that Slack’s customer retention rates are incredibly high.

Customer Base Chart

That means sticky, predictable revenues and cash flows.

And the fact that customers who have adopted Slack are staying with it verifies the value they are getting from the product.

As proof of how useful the tool is, consider that the average paid Slack user spends nine hours of each working day connected to the software.

The long-term potential here is huge. Obviously the market for a product that is the replacement for e-mail is massive, so this company can keep growing revenue at these impressive rates for years.

With $800 million of cash in the bank, Slack is not just a fast growing, but also already a well-financed operation.

This is a company that has the potential to be nothing less than a category killer.

So instead of grouping Slack in with the other overvalued IPOs of 2019, we should be thankful that the 2019 IPO bust has pitched us the opportunity to get these shares on the cheap.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@StPaulResearch.com

1 Fear Overtakes Greed in IPO Market After WeWork Debacle

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Jody Chudley

Jody Chudley is a contributing analyst to Lifetime Income Report and Contract Income Alert. Jody is a qualified accountant with a degree in Finance from Brandon University. After spending fifteen years in various finance and planning roles with an international financial institution, Jody set out to manage his portfolio on a full-time basis.

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