Slack CEO, CFO On Why They Went With A Direct Listing

industry annalys for Bloomberg Intelligence. So we've talked a lot Man Deep about the actual process of a direct listing, but I wonder if you can just give us a sense of what this company is really all about and why investors are, you know, kind of I think pretty interested in this in this new offering here. Sure. So, Slack is a company that was born on the cloud and it's writing this trend of mobility and shift to cloud.

When you think about their technology stack, you're really re platforming from on premise environments to a cloud based environment. And Black is a single product company. What it does is real time messaging platform zoom IF, which went public before Slack, it does you know, real time video communications. So I feel like there is a lot of fragmentation on the cloud now and what you're seeing is single product companies doing very well because cloud, remember is a

recurring subscription model, so you have tons of visibilities. Once you have a customer, it's very sticky, and I think that's why these companies are getting a lot of premium because there is growth, There is good growth, there is predictable growth. But at the end of the day, I think they're going to run against some Microsoft or a Google, and that's where you're you're gonna say, Okay, how how much RAM does this company have? And I feel like they haven't hit that point yet, but it will be

very soon. I should note that Bloomberg Beta, the venture capital arm of Bloomberg LP, is an investor in Slack, So it kind of brings up one of the questions, you know it it seems like a business that very relatively early stages that is slack of their growth profile. But we've seen in the past or somebod these you know, cool technologies really hit that Microsoft Software or or Google or an amaza. I can just come in and buy them up. And do you think that's a reasonable scenario

here for a company like Slack. Sure, So that's a great point. We've seen that beginning to happen now with Salesforce buying Tableau. What it tells you is the cloud. The large cloud companies like Salesforce, like Microsoft, even you know you can put Service Now in the same bucket, are looking for acquisitions because as a company, you don't

want to deal with fifty different vendors. If I have a point product from Slack, point product from Atlastian, point product from drop Box, that's not going to help me, you know, manage my enterprise systems any easier on the cloud. Yes, cloud is a better model with you know, subscriptions on demand. But at the end of the day, you want to see vendor consolidation. And I think with Slack, their revenue

is very growth is very strong, it's recurring. But at the end of the day, how many customers can they add for that single product, And that's a question that investors want to know. Well about a month or so, it seemed like we were talking to you a lot about uber Um and Lift and one of the problems was I from an investors perspective is they weren't profitable and the path of profitability was very unclear. Is Slack profitable, No,

it's not. In fact, they spend a ton of money on customer acquisition costs that the sales and marketing expenses are really high. They have operating margins of negative negative free casual margins. The good thing with Slack compared to the right sharing guys you alluded to, is that they have higher gross margins. Slack has typical you know, plus

gross margins. That's typical for any software company. And so the only level they need to pull this to lower their sales and marketing expenses and that way they can be operating margin positive. The risk is if they do that, then you know they're not going to acquire customers at the same pace and that's the key to driving revenue growth. Interesting, is this a global stories? Is a u S domestic?

So they have exposure in Europe. For most of the software companies, especially the cloud ones, they are America and Europe centric. They have very little exposure to China, and so in this case they are thirty percent of their revenue comes from Europe. Interesting, so it's we'll have to take a look, Mandy, if you're gonna stay with us. So we're gonna see how this stock opens that hasn't open yet in the marketplace, um, but expected sometime later

this afternoon. UM. So we'll have to see other place coming up. Of course, we have Emily Chang of Bloomberg Television. She's sitting down with Slack CEO Stewart Butterfield and the CFO Alan Shim at the New York Stock Exchange to talk about this new offering, to talk about the future of the company. So that'll be coming up in just moments.

But but clearly and highly anticipated transaction. Not only is it a you know, a well known technology company, high growth, lots of investor interest, but it's also direct listing way of issuing shares to the public and is not an I p O. It is a direct listing where your secondary shareholders are offering shares in the public marketplace. Uh. And buyers are being lined up and they're trying to figure out the right price which they can open this stock.

So we will see that coming right now. Let's go to Emily Chang of Bloomberg Television. Welcome to our Bloomberg TV and radio audiences. After bumper crop of I p O s either languishing or wildly exceeding expectations, Slack is taking a route to the trading fuller, it hopes will provide a much more well boring outcome a direct listing.

As we wait for the stock to start trading on the New York Stock Exchange, I am joined from the trading floor by the company's co founder and CEO Stewart Butterfield, and CFO Alan Shim. Gentlemen, thank you for joining us. Congratulation big milestone. We are waiting for first trade. The stock indicated to open thirty to thirty four dollars a share, which is higher than your reference price of twenty six

dollars a share. Stewart, how confident are you in this moment as you wait there for this stock to start trading about the process that the wreck listing was the way to go. Um. We'll see, But I think for at this point it has been working exactly the way we're supposed to work. Um. And ultimately we'll open, we'll have a high and a low today, we'll close, and then the same thing is gonna happen tomorrow and the next day and the next day, and we are very

much focused on the long term. Now, you're still paying large fees to bankers. You still raised a lot of money on the private market. So what problem are you really solving Stewart by doing a direct listing versus the traditional I P O. Well, the first one is that no need to raise primary capital. We came into this process with over million dollars on the balance sheet, so the delusion to existing shareholders would have been tough. I think we did get a little bit more freedom and

how we tell the story. So in addition to a road show, but instead of only having a road show in private rooms with the investors, we were able to do an investor day, live stream it and make the video available to everyone. Um, and that I think is a pertition a better position. Now Alan Slack is still unprofitable and the markets have rewarded profits even if they're

slim profits. How far out is profitability? Well, our primary focus right now is to invest in growth, and as we continue to build on what we think is a new category, that's going to be our focus for a long time. But we've also said to investors that our near term priority is to drive towards cash will break even. We have high confidence in the strong economics of our business that we can still invest very aggressively while driving

towards that near term profitability market. So, then, Stewart, how much of a priority would you say that profitability actually is. I think, uh, I don't want to get you technical about it. In sas there's a lot of deferred revenues, so accounting profitability isn't that much of a priority. As Alan was saying, bringing in more cash than we put out on an ongoing basis is a priority because it

allows us to control our own destiny. The ideal for us though, is that we continually find new ways and new opportunities to invest to further grow the business, and we don't need a lot of free cash flow, but just a little bit. Now, Allen, revenue growth is slowing. What are some new sources of revenue you're expecting to tap. Well, we're very pleased with the revenue growth. I think what you're seeing is also we're making great track when customers

and we've gotten customers today. Our enterprise customers are also growing even faster, so we have six customers over hun Kane revenue and I think what you're seeing is we're scaling so at the base of revenue that we're right now. Some of the revenue growth this mathematically will come down, but we're very optimizing about the opportunity. We believe it's a huge new category to be built and invested behind. So we're focused on that now. Stewart, We've charted your

progress from the very beginning. I went back into our archives. The first interview I did with you was inn when you were CEO of Tiny Speck and you were making a game called Glitch, which sort of became slack in Jared Leto crashed our interview. I will never forget that. Um, your employees, your users really love the sort of quirkiness of Slack, which is an ethos very much inspired by you. That said, you are becoming a public company. You're going

to be doing earnings calls every quarter. How do you manage that transition with public investors holding your feet to the fire. I think both Al and I have been committed and this is not a recent thing, but over the course of many years on building the kind of internal controls and systems that would allow us to operate as a public company. UM. So you know the financial

business operations side. That again a long time ago, and we've been working with the whole company that kind of transition in the limited number of ways that we do. I mean, the we believe we can keep the same culture. We can believe we can keep the same approach to serving customers. If you think about our mission to make people's working life simpler, more pleasant, and more productive, there's a nice humility to it because we do want to

be of service. So there's also a huge ambition, and I think the challenge for us or you know, like kind of the what we're going to have to pull off is bringing investors along on that ride and help them understand what the long term vision is and what we can truly do to support companies all over the world. Now you're entering the volatile market. We're in the midst of a trade war with China. You could imagine in an economic downturn that businesses are going to cut budgets.

They might not cut email, they might not cut Microsoft Office, they might cut the nice to haves, and they might think that Slack falls into that category. Stewart, how big a risk is that? I don't see any real risk in that we have exceptional retention, so industry leading on both the enterprise side and the SMB side. Um Our customers tell us black is the kind of thing that they didn't know they needed, but once they have it,

can't live without it. And if you can't live without Sudden, it's not going to be one of the items that are cut on a discretionary basis. So Alan would you say, you know, how much do these market fluctuations? How much are you following what's happening in the global economy. Well, we we watched it like anybody, all us, but it doesn't necessarily affect the way we are on our business.

We're building a new category. We have so many things to focus on, supporting our customers and building this ambition of a new way of working. So we've control we can control, and the markets see what they need to do now. Stewart analysts say that chat apps are a dime of dozen. You've got huge competitors like Microsoft, like Facebook, with deep pockets and billions of users over the longer term,

how do you differentiate yourself? How do you compete when even you say in your own risk factors, you haven't figured out the optimal price because it depends often on what your competitors are doing. At Slack, we say we are a competitor aware, but customer assessed, and I know it's hard for me to imagine anything that any competitor would do that would cause us to change our plans um when those plans are all oriented around creating value

for our customers. So one of the things you want to do is put ourselves in the position sets that Slack the company becomes more valuable as the world uses more software because Slack the product becomes more valuable for each of our customers as they use more software because of the platform, because of the integrations. Uh, you know,

there's a whole world out there of other software. The number of categories continues to put there for it, the number of dollars that companies investment software every year continues to go up. So in that kind of market, and in a world where we have ten million daily active users out of the million plus that we believe would benefits from Slock, it's just wide open all right. Shares now indicated to open thirty two thirty four dollars a share, So so we're getting a little bit higher. This means

that you know, investors, employees can sell their shares immediately. Alan, should we be worried about a brain drain? Should we be worried about a talent exodus once employees can sell with no lock up. I think employees like investors, they're appreciating how big of a category and opportunity this is.

We estimate this addressable market to be twenty billion dollars and we're just getting started here at one where a category and a product and a hub that values adoption and use er engagement, you know, customer experience as well as the thoughtless sort of alluded to which we think is going to transform the way people work in the future. Here now, Stewart, last quick question for you. You've been

very focused on building a diverse team. Slack punches above its way on women and minorities that I know even you admit that that you still have work to do. Unfortunately, other CEOs still don't think diversity is a priority. How has having a diverse team, having more voices in the room helped you get to this moment, helped you improve the bottom line? Well, I think that there's a bit of an increasing return dynamic. So the better job we do the easier it is to take the next step.

And so UM, there's a lot of early employees I think who made really important contributions to the Slack culture opened it up UM and brought in people from their network, and that has allowed us to kind of continue, which reduces some of the resistance because it can be very difficult if company gets too big. Is that's something that we're we're proud of, but you know, you said, we have more work to do. It's uh, that doesn't end. We're part of the larger culture, in the larger society UM,

and we do what we can. Uh. My hope is that there are you know, a group of people who graduate from SLOCK and go on to start other companies, UM, to have careers at other companies and kind of spread that way of working on all right, Stewart Butterfield, CEO and co founder Slack Ellen Shim the CFO, we're waiting for shares to start trading. Thank you both so much for joining us. Back to you, Emily Chang, thank you

so much. That was Emily Chang of Bloomberg Television interviewing Slack CEO Stewart Butterfield and CFO Allen Shim who were on the New York Stock Exchange floors. The stock opens begins to openfor trading. At some point later this this morning, we still have man Deep seeing with us Man Deep as the senior technology annals for Bloomberg Intelligence, So Manteep. One of the things I thought was interesting was the discussion around competition. Um. The question, I guess is there

are some big competitors in the marketplace. How do you think Slack is positioned in that space? Sure? So, I think when I look at, you know, the comparative landscape, obviously Microsoft is the biggest one for Slack, and Microsoft is still a hybrid company. It's you know, it's got a huge legacy on premise customer base and it's got

a lot of new cloud offerings. I think what they're trying to do, what Microsoft specifically is trying to do, is to build their team's product which competes with Slack, and Slack will have a tough time displacing a Microsoft when it comes to you know, large enterprises. So I think Stewart alluded to it that they're gonna keep spending on, you know, acquiring new customers. That seems to be the

path to sustain revenue growth. Here, I would have wanted to, you know, hear more around product expansion and how they want to move into different areas of software versus just focusing on chats, because there are a lot of chat companies out there and it's hard to you know, sustain your revenue growth just when you're a single product company. Yeah. The other thing I heard there which kind of concerned

me a little bit, is a discussion about profitability. This is, you know, this the standard line from a lot of these technology companies that they are going to continue to invest in growth. And I think what we saw again from Uber and Lift is investors are all for the top line, but they least have to have some path to profitability, a vision of how a company can get to profitability, and arguably Uber and Left have not made that clear to investors. Do you think investors are going

to give this company? I pass on this don't worry about the profits right now story. I think as long as they maintained the top line growth of over fifty that's the key here, because the overall cloud market is still growing over and we're talking about, you know, a hundred and fifty billion plus market growing at this is a company with four hundred million dollars in revenue, it has to you know, grow at least fifty. As long as they maintain that top line growth, it should be okay.

But I think where they're gonna struggle is we've got good comps for Slack. You have a company like a Classian that is operating margin positive. You have a company like DocuSign that is operating margin positive. Box and drop Box are trading at much lower multiples than Slack is. So I think there will be a real challenge for Slack to make sure investors are able to you know, write in that growth story without them having a clear path through profitability. Men Deep Seek, thank you so much.

A man Deep, senior tech analyst for Bluemberg Intelligence, joining me here in the Bloomberg Interactor Brooker Studios. Trade back on the front, Bernard, and I guess despite some deverished comments by President Trump yesterday about trade tensions, remain high concerns about what the impact will be on corporate America. Now we're actually starting to see some of the leading corporations in America kind of voicing their concerns to the appropriate folks in Washington. So you get a sense of

what's going on there. We welcome Sarah How's Actually's a retail colms for Bloomberg Opinion, usually based in d C, but joining us today in our Bloomberg Interactive Broker Studio. Sarah, thanks so much for being with us. So we think about some of these big companies, big brands, how are they trying to get their story about to the Washington regulators about what could really impact their business if these tariffs do in fact go through. So so far, they're

using a pretty traditional playbook. They're using their trade groups in Washington, like the National Retail Federation. They're writing sternly worded letters to the President that are signed by coalitions of big name retailers UM and this week, what we're seeing is that they are testifying at hearings for the Office of the U. S. Trade Representative, trying to make

their case in that format. And I'm sort of wondering if it's time for them to go off script here and try something different, if it's time for these really high profile consumer brands to get out there in a more individual way and make their case directly to consumers

that these tariffs are not a good policy. Idea because what we've not seen I don't believe is the you know what we used to see in years past on time maybe would be a you know, full page ed in the New York Times or Walsh Journal, or television ads or you know, a social media campaign. We haven't really seen that yet, have we. That's exactly right, and I think that we should imagine the power of Nike.

We all know it's marketing prowess. Imagine if they put together a TV commercial sort of outlaying how this affects them and their consumers. Imagine if you walked into a retailer like Old Navy and they had a sign ups thing. This ten dollar T shirt will be fifteen dollars in November if this tariff policy is enacted. I think that there's a fear out there that President Trump's brand is so powerful that nobody wants to sort of go toe

to toe with him. But at the end of the day, these retailers ought to remember their brands are really powerful too. They serve millions of customers every day who have a real loyalty to them, and that they should play on that and try to get out there, get on the Today Show, make their case directly to consumers. Is there a sense that GF one or two big brands like a Nike or something like that does it first, then others will follow. I think that could certainly help. And

I just think that retailers have to remember that. I think that we've just sort of seen Trump has a willingness to put them in the center of all sorts of issues that don't even relate to trade at this point. We saw that most clearly with his threats on Mexico right there. That's been averted temporarily, but that he was going to put tariffs on all goods coming in from

Mexico to get his way on immigration. And so I think whatever risk they see out there in speaking up on this issue, the risk to being put in the center of another one of these entanglements, I think for them is far worse. Right. And what have you have we seen anybody kind of maybe just do a little bit more. Have we seen anybody do anything on this front um or do you think maybe they're just waiting to see what happens down the road, maybe the G

twenty or something like that. Now, I think we've seen, you know, comments here and there on earnings calls like Walmart just kept repeating something along the lines of uh, there's no question that increased taxes result increased prices. But

they weren't saying any specific, anything specific. And I think that's where it would really make a difference, Right if consumers could hear on this particular item that I put in my pantry every week, or on this particular item I know I'm going to need to buy for my kids back to school shopping, I'm going to see higher prices. I think that could go a long way towards getting people riled up. Um, And we're just not seeing action there.

I think the other thing to remember is that I have covered so many of these collisions of retail and politics over the years, going back to Chipotle saying we don't want people to bring guns into our stores, going back to Walmart's UH saying urging its governor in Arkansas to Vito or religious freedom bill, um. And none of this has long term impact on any of these retailers. I think we just live in a moment where politics and business are colliding more and they should speak up

on the stuff that matters to them. This is fascinating. We'll have to see how that plays out, because clearly the impact on retailers and big consumer companies could in fact be substantial. Some of these tariffs do go through and likely, very likely could impact their businesses. Sarah Hawsak, thanks so much for joining us in studio. We appreciate it. Sarah's a retail calumnist for Bloomberg at Opinion. Well, equity markets are certainly applauding the Fed's statement yesterday of likely

easing later this year. To get a sense of where we go from here, we welcome Barry nap Berry is a managing partner for Iron Sides macro Economics, based in Westland, New Jersey, but now Vail, Colorado. Lucky Barry, Barry, thanks so much for joining us. Just wonder if you can give us kind of your takeaways from what we heard from Chairman Pal yesterday. Sure. Um, well, they seem absolutely committed to Uh, we're trying to resolve at least the

low inflation that's so persistent in the economy. Um. I think it's an exercise and utility. Quite frankly, we've done a lot of work on the correlation of the components of GPI to convince ourselves that you me, what's causing that the low inflation is um innovation adoption in the service sector, and global excess capacity and goods. Even an energy um shale has fundamentally changed the elasticity of supply

and likely dampen volatility and energy prices over time. So all these things are out of the purview of the FETE, but none. Nonetheless, they seem absolutely convinced that, uh, you know, they've got to try and ease policy to to boost inflation backwards two percent. Now I'm trying to avoid falling into the trap of sounding like a bit of a shrill and saying, well, this is going to cause um, you know, impair creative destruction and cause asset bubbles and all.

Both those things are certainly true in the long run, but in the near term, I don't think there's a heck of a lot of risk to them easing from this point, and so I'm a I'm a bit indifferent to the whole thing. Obviously, investors in the near term cheered it though we're well off or high um. But I think on balance, to really understand what's going on with the FED and what happened last year, I think you need to step back from conventional rate policy and

think about just that. The demand for bonds from the three major developed world central banks. So the e c B, b o J and FED bought two trillion dollars worth the bonds in ten they bought zero. And that really accelerated around the September October time frame, when e C D cut their purchases in half then reached their maximum

caps for balance sheet runoff. The B o J had altered their guield curve control program a bit, and there was a provision in the tax bill that ended that allowed companies to contribute to their pension plan at the old rate. So really what you had was a liquidity shocked, going from two trillion of demands to zero in demand, and that's what caused what we've been calling the q T, you know, stock market crash in the fourth quarter. It

wasn't that rates got too tight. There was no part of the economy really that exhibited um signs that that policy was quite even the housing market. We thought the slowdown last year was attributable to the state and local tax production elimination, not higher rates. So much so I'm balancing,

I'm sort of been different to FED policy here. I think what's more important is the improvement in domestic demand and the pick back up and consumption from that QUT crash that's been so evident in retail sales in particularly last week's numbers. All Right, So if the FED is what it is here, it's on the sidelines at least for the very near term and then likely to ease

a little bit later in the year. The other big driver of the market's performance really, you know, over the last six to nine months, has been global trade tensions and then appears that they might be coming to a head here with China. How do you think that plays out and how should investors kind of be positioned for

How do you think trade discussions with China my playout? Um? Well, I thought that last week's numbers from China were really very telling inasmuch as um industrial production was weaker than expected, fix ass and investment was weaker than expected. The import component of the trade data was much weaker than expected, and whatever strength there was was in their traditional heavy industry state owned enterprise sectors so steel cement those sectors,

and consumer sectors like auto production was decidedly weak. Technology was very weak, So I we expect that this really strengthened the hands of her formers and led to President she being willing to come back to the table and restart negotiations. So we've placed a fairly high probability that we get a trade to tant h next week and that pushes UM any further tariffs down the road at least still much later this fall. So I think on balance that's the key driver of the recovery and business

confidence in the US. That's been evident in capital spending plans and the National Federation of Small Business confidence measures, as well as a pickup and labor market turnover. So that to us is the most likely scenario now if the deal falls apart or if there is no trade to time, because the stock markets, the fries UM, we're clearly more vulnerable than we than we had been, perhaps

even going into you know, the May trade tweets. Still I think that's a low probability, but you know that you know that the downside associated with that is even greater now that we're back up at the high. Now that we're back up at the high, Barry Nap, thanks so much for joining us. Barry's managing partner at Iron Science of macro Economics joining us on the phone today from Lovely Vail, Colorado. We appreciate his comments. Thanks for

listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. On Paul Sweeney, I'm on Twitter at pt Sweeney, Brahmway Time on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.