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Enterprise messaging service Slack has released its S-1 document as filed with the SEC, en route to a public debut. Of note is Slack's earlier decision to conduct a direct listing, versus an underwriter-backed offering, leaving the public markets to decide how much the communications unicorn is actually worth. This, however, will result in no new funding for the company, which last raised a $427 million Series H with a $7.13 billion valuation in August 2018.

While the unprofitable company's direct listing brings vulnerabilities, such as a possibly underwhelming share price, it may be a smart option in the current IPO climate. As Lyft's disastrous IPO set a negative impression on the high-profile 2019 IPO marathon, Pinterest set its initial terms below its last venture-backed valuation and  Uber set its lower than earlier expectations of its blockbluster IPO would have suggested. The common theme is that the three aforementioned companies chose underwriter-backed IPOs, thereby raising company funds and ensuring a fixed exit price for some pre-existing investors.

Slack's direct listing, however, would largely free the company from public scrutiny should its share price be lower than hoped for. This may be a fair trade-off for investors, if only in theory and symbolism, as Slack posted a $140 million net loss for the year ended Jan. 31, 2019, slightly lower than a $180.96 million loss in 2018 and on par with a $146.86 million loss in 2017. While public perception and appeasing investors may be a lower-priority in the motivation to conduct a direct listing, it is nonetheless a timely choice, given the string of consistently unprofitable companies debuting to lukewarm receptions.

Here are Slack's key facts and figures from its S-1: Slack's time as a private company Founded: 2009

Total venture capital raised: $1.22 billion

Most recent funding round: $427 million Series H with a $7.13 billion valuation in August 2018

Reached unicorn status: October 2014 with a $1.12 billion valuation after a $120 million Series D Public S-1 figures Revenue: $400.55 million for the year ended Jan. 31, 2019, continuing a nearly 100% YoY growth streak with $220.54 million in 2018 and $105.15 million in 2017

Costs and expenses: $503.46 million as of Jan. 31, 2019, up from $338.03 million in 2018 and $238.14 million in 2017

Net losses: $140 million net loss for the year ended Jan. 31, 2019, down from a $180.96 million loss in 2018 and a $146.86 million loss in 2017

Paid customers (organizations with three or more individual users): 88,000 as of Jan. 31, 2019, up from 59,000 in 2018 and 37,000 in 2017

Paid customers yielding over $100K in annual revenue: 575 as of Jan. 31, 2019, accounting for 40% of company revenue, up from 298 in 2018 and 135 in 2017

Nonpaying organizations on the "Free" plan: Over 500,000
 
Slack's business model greatly incorporates the power of "free" and a heavy dependence on a small number of big spenders. As mentioned above, the 575 organizations spending over $100,000 per year accounted for 40% of Slack's annual revenue for the year ended Jan. 31, 2019. With 500,000 organizations using the free version and only 88,000 paying, this means over 80% of Slack's customers are not substantially monetized, if at all.

Slack's S-1 acknowledges the heavy dependence on subscription revenue from a small number of customers, stating: "If we are unable to attract new users and organizations, convert users of and organizations on our free version into paid customers, grow or maintain our Net Dollar Retention Rate, expand usage within organizations on Slack, and sell premium subscription plans or develop new features, integrations, capabilities, and enhancements that achieve market acceptance, our revenue growth and profitability will be harmed."

Unlike Pinterest, which monetizes free customers via advertising and data usage, and Zoom Video, which offers significant upsells such as full conference room development services, Slack's offerings are comparatively more limited in revenue prospects currently. The company mentions that customers are primarily charged simply based on the number of users within an organization: "Paid customers typically pay on a monthly or annual basis, based on the number of users that they have on Slack," the company writes in page four of the S-1 document.

The model is therefore currently focused on headcount alone, with limited upsell offerings to increase revenue per user. This represents both a near-term drawback for the company and a long-term growth avenue; should the company improve monetization efforts, its pool of over 500,000 nonpaying organizations is ripe to be a revenue-generating machine, opening a floodgate of cash for the company, assuming maintained retention rates. The problem until then remains a stubborn dependence on piecework revenue from user count alone and an incredibly unbalanced dependence on a tiny portion of big spenders.

Investors' belief in the company's long-term ability to substantially improve monetization and upselling may be the determining factor in whether a bullish or bearish sentiment emerges on the public markets.

Featured image of the company's Melbourne office courtesy of Slack.