b'platform allows users to create team-based channelsMaterials also stated that Slack had a [d]ifferentiated to maintain a record of conversations, documents,go-to-market strategy based on organic growthdata, and application workflows relevant to a project oras users realize the benefits of Slack and that Slacks specific topic, while also integrating with thousands ofuser base ha[d] grown rapidly since [its] launch in 2014.third-party applications. Slack offers a free subscriptionFollowing its initial listing, in June and July 2019, and also sells subscriptions to its technology usingrespectively, Slack experienced two service outages. a service-as-a-software (SAAS) model, whereOn September 4, 2019, Slack reported its second customers usually pay monthly or annually basedquarter 2019 results, which beat guidance, and on the number of users. In 2018, Microsoft Teamsprovided third quarter 2019 guidance, noting that it introduced a free tier and a feature for adding peopleexpected a wider loss than analysts predicted and outside of an organization, and began to competenoting [r]evenue was negatively impacted by $8.2 head-to-head with Slacks freemium model. million of credits related to service level disruption in In lieu of an IPO, the company pursued a direct listingthe quarter. Slack also disclosed that its operating loss of its Class A stock on the New York Stock Exchange.was $363.7 million, compared to $33.7 million in the Slack was listed for sale on the NYSE as of June 20,same quarter of the prior year and other indicators that 2019. The direct listing followed a 2018 SEC rulegrowth had slowed. During an earnings call later that change that allowed companies to enter the publicday, Slacks CEO stated that uptime was 99.9% or 3 market for the first time without a public offeringnines in the quarter. But this was below our commitment of its securities, but still subjected the company toof 99.99% or 4 nines and that the outages were registration requirements under the 1933 Act. Sharescaused by scalingwe continue to hit limits that we held by early investors were not subject to the samedidnt realize were built into the system. On that call, he lock-up period as with an IPO, and could instead offeralso acknowledged that we give those service credits their shares for sale on the same day as the directto every customer even if they were not specifically listing. In connection with its direct listing, Slack filed aaffected. So those policies are outrageously customer-registration statement and a prospectus (collectivelycentric and unusual. On September 5, 2019, Slacks the Offering Materials) with the SEC. The Offeringshare price dropped by $1.06 or approximately 3%. The Materials applied to up to 118,429,640 shares offeredshares continued to drop the following day such that for resale to the public. The Offering Materials alsothe total drop over two consecutive trading days was disclosed that approximately 164.9 million shares were$3.69 per share, or approximately 12%.available for resale and were exempt from registrationOn September 12, 2019, investors filed a putative class pursuant to the SEC Rule 144 safe harbor.action lawsuit against Slack, its officers, directors, and In the Offering Materials, Slack disclosed certaincertain institutional shareholders in California state information about its service commitments, competitors,courts alleging violations of Sections 11, 12(a) and 15 of performance, and growth strategy. Slack disclosedthe Securities Act on the grounds that statements in the that it built [its] technology infrastructure using aRegistration Statement regarding the companys go-distributed and scalable architecture on a global scale.to-market strategy and scalability were allegedly false It also indicated that it had Service Level Agreementsor misleading because the company was experiencing (SLAs) with paying customers and the platform couldsignificant and increasing competition from Microsoft experience intermittent outages, for which SlackTeams, its attempt to attract enterprise clients was could be obligated [under the SLAs] to provide creditscreating vulnerabilities in its platform, and Slack could for future servicewhich could harm [its] business,not and had not been able to support its guaranteed results of operations, and financial conditions and that99.99% uptime resulting in exceptionally generous continued growth depends, in part, on the ability ofcredits to customerseven unaffected customersexisting and potential organizations on Slack to accesswhen there was an outage. Slack 24 hours a day, seven days a week, withoutOn September 19, 2019, investors filed a similar federal interruption or degradation of performance and thataction in the U.S. District Court for the Northern District Slack experienced intermittent connectivity issuesof California. On November 8, 2019, defendants and product issues in the past. The Offering Materialsmoved to dismiss that complaint arguing that none of identified Microsoft as Slacks primary competitor, butthe challenged statements were false or misleading noted that it was uniquely positioned to more rapidlyand asserting grounds for dismissal unique to the fact innovate than its competitors. The Offering Materialsthat the claims were based on a direct listing. First, also described Key Benefits of the Slack platform,defendants contended that the plaintiff did not and including that it leads to high levels of engagement,could not plead that his Slack shares were traceable to increases an organizations return on communication,the Registration Statement, which is necessary to have helps achieve organizational agility, and organizationsstanding to bring Section 11 and 12(a) claims, because archive of data increases over time. The Offering 22'