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Slack Technologies Inc. today made its long-anticipated debut on the New York Stock Exchange at $38.50 a share, tripling its valuation to a stunning $21 billion. 

The stock kept rising in early trading and quickly passed the $40 mark. Slack, trading under the ticker symbol “WORK,” is now hovering around $41.70 a share, which is 60% higher than the $26 reference price the NYSE had set for the stock on Wednesday evening. Update: Shares cooled slightly during the trading day, closing up just under 49%.

The NYSE advisory was necessary because Slack’s shares weren’t put up for grabs at a predefined price as they are in a traditional initial public offering. Instead of an IPO, the team chat service provider opted to hit the stock market through what’s known as a direct listing.

In a direct listing, a company doesn’t go through investment banks to issue new shares and line up a group of initial investors to buy them. Instead, it simply puts  existing shares up for sale directly on the stock market. This avoids the hefty underwriting fees involved in a traditional IPO and thus increases the potential payoff from the offering. But it also comes with certain risks, which is why Spotify Technology SA was the only major tech firm prior to Slack that chose a direct listing over an IPO.

The bet has paid off for both companies. In the case of Slack, its market leadership position and rapid growth went a long way toward offsetting the risks normally associated with a direct listing. The company increased revenues by a massive 82% in the 2018 fiscal year, to $400 million, and closed its most recent quarter with sales of $134.8 million, up 67% from 12 months earlier.

Slack’s revenue momentum is a direct function of the rapid growth of its user base. The company passed 10 million active daily users in January, after adding 4 million new accounts within roughly nine months.

Those users represent more than 600,000 organizations, 95,000 of which are paying customers as of April. Slack is spending aggressively to maintain its growth and lost $38.4 million in the first quarter as a result. However, it’s clear that any concerns about the company’s profitability which may have swirled around Wall Street were overshadowed by the investor optimism about its growth prospects. 

Slack Chief Executive Stewart Butterfield laid out an ambitious roadmap in a CNBC interview ahead of the listing. “We’re low single-digit-percentage penetrated into what we think is an enormous market,” Butterfield said, “There are a couple hundred million people whose working lives are mediated by emails, and they would all be better off with Slack or something like it.”

Slack’s strategy is not so much to remove users’ need for email, but rather to take over some of the functions fulfilled by the traditional inbox. The company last year acquired Astro Technology Inc., which developed a Slack extension that allows workers to view and reply to messages through the chat interface. In April, Slack doubled down by adding Office 365 integrations that make it possible to send emails to specific chat channels.

“The true sweet spot of workplace collaboration is a mix of tools that provides both email-like and chat messaging capabilities, as well as houses all company files,” Igloo Software CEO Dan Latendre told SiliconANGLE. Igloo sells a collaboration platform that integrates with Slack. “But the need to send long-form messages with detailed information isn’t going away, so tools like email will always serve a purpose in the workplace.”

Nonetheless, Slack faces a lot of challenges, from strong competitors to profitability to the need now to operate in the glare of public markets.

“Unicorns do best when they have a 5-10X advantage on the entrenched players,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “Both Microsoft, with Teams, and Google, with Hangouts, are entrenched players and Slack has no discernable advantages over the two giants. This, plus the fact that Slack charges only a small percentage of its users, should give investors pause.”

This year has seen a steady stream of companies going public to varying investor receptions, including Uber Technologies Inc., Lyft Inc., CrowdStrike Holdings Inc., Zoom Video Communications Inc., Pinterest Inc. and PagerDuty Inc.

Photo: Goldman Sachs/Twitter