Sources: Slack is planning to go public through a direct listing, likely to debut in the second quarter (Maureen Farrell/Wall Street Journal)

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As of last year, Slack had more than 8 million daily active users and 3 million paid users.


Photo:

Chris Ratcliffe/Bloomberg News

Slack Technologies Inc. is planning to go public through a direct listing, according to people familiar with the matter, potentially making it the second big technology company after Spotify Technology SA to bypass a traditional IPO.

Slack, which operates a popular workplace instant-messaging and collaboration app, is likely to debut in the second quarter, the people said. The company currently expects to do so via a direct listing, though its plans could change, they said.

In a direct listing, a company bypasses the traditional underwriting process, which involves lining up investors ahead of time and selling shares at a set price, and instead lets the open market play a greater role in setting the price.

No money is raised for the company and for that reason direct listings are rare. Spotify is the only large company that has done one, debuting last year on the New York Stock Exchange.

For companies that can forgo the cash, the benefits include sidestepping hefty underwriting fees and avoiding lockups that prevent insiders from selling shares for a set period. Spotify’s listing was widely viewed as a success and that likely emboldened Slack to try one too.

Slack operates a popular workplace instant-messaging app used for group communication and as of last year had more than 8 million daily active users and 3 million paid users.

The company has raised more than $1 billion since it launched in 2013 at increasingly higher valuations and still has significant cash on its balance sheet, people familiar with the company said. In August, Slack raised $427 million in a funding round led by Dragoneer Investment Group and General Atlantic valuing the company at $7.1 billion. That came after it raised money from

SoftBank Group

in 2017.

Slack expects it could achieve a valuation well in excess of $7 billion, people familiar with the process have said. Still, public valuations are unpredictable and there is no guarantee Slack’s will live up to those expectations.

While IPOs are largely at a standstill due to the government shutdown, some of the largest private companies ever are preparing to go public this year, including Uber Technologies Inc., Lyft Inc. and Pinterest Inc., which bankers say could power 2019 to a record in terms of dollars raised from new issues.

Slack is working with

Goldman Sachs Group
Inc.,

Morgan Stanley

and Allen & Co. on the deal. The trio were the advisers on Spotify’s direct listing. While much of Wall Street missed out on fees from that deal—a typical IPO has far more underwriters than a direct listing has advisers—the three were paid about $36 million in total for their work on Spotify.

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Wall Street bankers are concerned about the possibility that more sizable companies will pass on IPOs and pursue direct listings, but only a small number of issuers have the luxury of taking that route. Most companies need cash from a public offering, and even for those that don’t, many need underwriters’ research analysts to cover them to generate sufficient interest from investors. Typically, Wall Street banks assign analysts to cover companies whose IPOs they underwrite.

In Spotify’s case, the music-streaming company was expected to generate significant investor interest anyway, but there are questions around whether Slack has broad enough name recognition.

Spotify’s direct listing had little volatility and no major trading glitches. Still, the stock is nearly 17% below where it closed the first day of trading.

Write to Maureen Farrell at maureen.farrell@wsj.com


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