Slack Is Going Public Without an IPO – How a Direct Listing Works • Hacker News Board

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#81

Post by georgeecollins » Fri, Jun 21, 2019, 2:13 PM UTC

mruts wrote: post #65

georgeecollins wrote: post #10

Earlier quoted context omitted.

It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. Clearly there are valuable companies in this category such as Amazon and Facebook early in their days as public companies. But trying to figure out what they might be worth someday is an exercise in predicting what the future of the world might be. It is not like making a calculation…

Hypothetically, a companies value should be a sum of it’s expected infinite cash flows divided by the discount rate. If a company lost $10 one year, $5 another, and broke even the third a guess of making money the fourth year is probably more reasonable than a guess of making the average, even with a marginal book value. Therefore, I don’t think it’s that surprising that companies losing money are still worth a lot.…

Discounted cash flow analysis is not what is going on here. Looking at it historically, FB went public with a valuation that its web business at the time could never justify. If you assume people who bought at the price were making a rational calculation, they weren't valuing the business cash flow, they were valuing something else Facebook had. A technical capability, the management, a brand, the things that let them extend their business to mobile messaging and acquire WhatsApp and Instagram. What happened wasn't just cash flow growth. Ditto for Amazon and Google.

I think that is what is going on with Uber. Their current core business will never earn enough to justify their valuations. Investors assume it will add new divisions and capabilities.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#82

Post by mfatica » Fri, Jun 21, 2019, 2:50 PM UTC

erik_seaberg wrote: post #61

btown wrote: post #17

Earlier quoted context omitted.

Since they need infinite storage even for non-paying users in case they pay for full historical search (though this can be on Glacier or some other type of archival storage), it's probably more than a few pennies, but your point is still entirely valid.

Heh. If you do nothing but type at 216 wpm for 16 hours/day, you might generate 430 MB, which would cost $0.02/year to store on Glacier. That's before compression.

Images, file uploads, rich text and more all have to be saved as well.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#83

Post by mlthoughts2018 » Fri, Jun 21, 2019, 4:29 PM UTC

b_tterc_p wrote: post #80

mruts wrote: post #62

Earlier quoted context omitted.

The market incorporates information into the price, not the other way around. Or in other words the price is the total aggregate of the information.

The market does incorporate new information into the price, but that doesn’t mean new business information is the only driver of the price, the largest driver of the price, or that the price is well set to begin with. Consider the current state of the economy. People have lots of money with fewer places to put it. Lots of people just dump it into index funds. That means more shares of large companies are bought, whic…

The market inpounds any new, publicly available information into the price, not merely business information.

If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know!

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#84

Post by mlthoughts2018 » Fri, Jun 21, 2019, 4:30 PM UTC

rolltiide wrote: post #58

mlthoughts2018 wrote: post #24

Earlier quoted context omitted.

That’s a bit disingenuous. Efficient market theory gives clear reasons to believe that rational investors would produce a market valuation of the stock, based on net present value of future income streams, that reflects marginal utility in putting a dollar into the stock vs not. Obviously, rational & efficient market behavior breaks down in reality. But tell me, how does it break down exactly? What alternative measur…

Efficient market theory is unfalsifiable That should say everything you need to know

This is just wrong. For example consider CAPM, and then look at persistent evidence of the low-beta anomaly. It’s totally falsifiable.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#85

Post by dcolkitt » Fri, Jun 21, 2019, 4:55 PM UTC

georgeecollins wrote: post #10

youeseh wrote: post #7

I know this is an apples and oranges comparison, but I just find it fascinating how value is derived in society. The current stock price, Slack's market cap is half of Tesla's. And, a lot of people think that Tesla is overvalued.

It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value. Clearly there are valuable companies in this category such as Amazon and Facebook early in their days as public companies. But trying to figure out what they might be worth someday is an exercise in predicting what the future of the world might be. It is not like making a calculation…

> It is really hard to make a financial argument for the value of a stock that makes no profits and is has a low to negative book value.

IMO the best justification for Slack's market value is that its likely to be acquired by one of the mega-cap tech companies in the relatively near future.

Alone it may not be a profitable business, but integrated into a broader ecosystem like AWS or Microsoft Office or Facebook's network, may result in extremely valuable synergies.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#86

Post by dcolkitt » Fri, Jun 21, 2019, 5:10 PM UTC

The primary reason for doing a direct listing is because you don't need to raise capital. It's mostly reserved for the case where you want your pre-existing shareholders to access the liquidity of the public markets.

In contrast, if you're actually going public to raise more capital, direct listings are a lot riskier. Basically the point of the IPO, and paying investment banks huge fees, is to select and handhold the new investors.

The investment bankers perform a lot of work around actually getting supply to meet demand. They're doing roadshows in front of potential investors, getting feedback on the best way to present the company, trying to determine what the market would price the company, etc. They're also making some effort to curate a higher-quality investor base, i.e. those who actually believe in the company's vision and aren't likely to flip the shares for easy money or sell out at the first sign of trouble.

The reason for the traditional IPO pop mostly has to do with compensating these types of investors for making a commitment and taking a risk on an unproven stock.

Now if it's definitely debatable whether what the company pays in the form of investment banking fees and systematic underpricing is actually worth it. But the point is that for a company like Slack, which isn't raising capital, it's almost certainly not worth it. On the flip side the success of this particular doesn't necessarily tell you anything about how much value a traditional IPO does or doesn't add.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#87

Post by FartyMcFarter » Fri, Jun 21, 2019, 8:21 PM UTC

asdfasgasdgasdg wrote: post #55

FartyMcFarter wrote: post #5

Earlier quoted context omitted.

> assuming you used a market order, which you never should). Yeah I don't get why market orders even exist . If you're doing something that usually costs thousands to millions, is it ever a meaningful benefit to saving a click or two and a few keystrokes? If my broker had an option to remove my ability to do market orders (sell or buy) I would immediately enable that.

I only use market orders. I generally intend to hold a stock for at least a few years when I buy it. What advantage do limit orders offer me?

Protection from events like flash crashes.

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#88

Post by ineedasername » Sun, Jun 23, 2019, 5:28 AM UTC

patmcc wrote: post #8

ineedasername wrote: post #6

Earlier quoted context omitted.

Would you mind explaining the difference between a market order & a limit order?

A market order is "I want to buy 10 units, no matter what the market price is" and a limit order is "I want to buy 10 units at a price no more than $50" or whatever.

Limit orders certainly seem to make a lot more sense, less risk. Is there a use case for market orders that's Superior to limit orders?

Re: Slack Is Going Public Without an IPO – How a Direct Listing Works

#89

Post by b_tterc_p » Sun, Jun 23, 2019, 1:20 PM UTC

mlthoughts2018 wrote: post #83

b_tterc_p wrote: post #80

Earlier quoted context omitted.

The market does incorporate new information into the price, but that doesn’t mean new business information is the only driver of the price, the largest driver of the price, or that the price is well set to begin with. Consider the current state of the economy. People have lots of money with fewer places to put it. Lots of people just dump it into index funds. That means more shares of large companies are bought, whic…

The market inpounds any new, publicly available information into the price, not merely business information. If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know!

> The market inpounds any new, publicly available information into the price, not merely business information.

Yes, and the “price” is not the expected net value of future cash flows, it’s an estimate of what people are going to pay for it. The price and the value are two distinct concepts.

> If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know!

I know that you’re taking a positive “well show me” kind of stance to imply that I don’t know the market better than the people actively involved in it. But I’m not claiming to know where prices should be. I’m claiming prices are driven by a variety of things, one of which is value, but much of which is just various unsubstantiated assumptions. Many of those assumptions could be entirely incorrect. That does not mean the market will realize this soon, or ever, so assuming that any particular world view of what’s incorrect will materialize in a price change isn’t the wisest decision.

For capital gains oriented growth tech stocks especially, significant money has been invested because of a simple lack of alternatives, which has inflated prices. Should those prices fall? Irrelevant question, because value is not the sole driver of price. Irrationality is a part of the system.