Subscribers are probably aware that WORK opted to go the direct listing route rather than use the more traditional means of hiring investment banks. Therefore, the company didn't offer any shares, so, technically, WORK isn't actually an IPO by definition.
Before the open this morning, its CEO commented that one of the biggest motivators in using a direct listing is that the market can discover price more efficiently with less volatility, rather than having an investment bank set a price range.
The company may have a good point.
For instance, Lyft's (LYFT) IPO priced at $72, which some (correctly) felt was too high at the time of its debut. The stock immediately tanked, setting a negative tone and sentiment out of the chute. Even though the stock rebounded off its lows, a negative connotation still surrounds the name. That is a situation that WORK likely wanted to avoid.
On the flip side, deals like Beyond Meat (BYND) and CrowdStrike (CRWD) were woefully under-priced, leaving substantial amounts of capital on the table. Put another way, in those cases, the investment banks did not discover price accurately.
Additionally, WORK's successful launch may open the door for more direct listings in the future. Recall that online music platform Spotify (SPOT) also had a direct listing. At the time, that seemed like a somewhat radical idea. But, after some initial weakness, SPOT rallied sharply higher during its first several months of trading, demonstrating that a direct listing might be a viable method.
From a fundamental perspective, WORK has some attractive attributes, including high double digit revenue growth and a long runway for further growth due to the enormous addressable market.
The main question, though, was what price would investors have to pay for that growth. With the stock trading at $40, WORK has an estimated forward P/S of about 23x. That is based on an expected top-line growth rate of 50% in FY21.
That is excessive, but, WORK is hardly alone. For instance, Zoom Video Communications (ZM), one of its key partners, is trading with a forward P/S of 37x. PagerDuty (PD), another recent tech IPO, has a forward P/S of 20x.
These ultra-rich valuations show that investors are still willing to pay up for premier growth companies. However, if the market sours and becomes more volatile - which is certainly possible given the headline risks around Iran and China - these high-flying stocks would be especially prone to a sharp profit-taking pull-back.