First On CNBC: CNBC Transcript: Slack Co-Founder and CEO Stewart Butterfield Speaks with CNBC’s Andrew Ross Sorkin Today
WHEN: Today, Thursday, June 20, 2019
WHERE: CNBC’s “Squawk Box”
The following is the unofficial transcript of a FIRST ON CNBC interview with Slack Co-Founder and CEO Stewart Butterfield and CNBC’s Andrew Ross Sorkin on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Thursday, June 20th. The following is a link to video of the interview on CNBC.com:
Watch CNBC’s full interview with Slack CEO Stewart Butterfield ahead of direct listing
JOE KERNEN: Let’s get right to the big interview of the hour of the day, Andrew is standing by with the CEO of the software company Slack, which is set as to make its Wall Street debut today. Andrew, take it away.
ANDREW ROSS SORKIN: Hey, Joe. Thanks for that. Joining me right now is Slack’s Co-Founder and CEO Stewart Butterfield. We are thrilled to have you on this big day. It’s not an IPO day, it’s a direct listing day, which is a different thing. So just explain what is actually happening so people understand.
STEWART BUTTERFIELD: All right. I’ll do this one pretty briefly. So, in a traditional IPO you have underwriters who commit to buy the shares. They kind of pitch them to a small group of investors. All of that happens in private. Only those shares are available to trade and the rest are locked up. And that might be – 90% are locked up and 10% are traded. In a direct listing, potentially 100% of the shares are tradeable. And there’s many sellers and there’s many buyers. So, you should find a market clearing price earlier. The big thing for us was in the traditional IPO, it’s the company that’s offering shares, you might raise, you know, a billion dollars or something like that. When you raise a billion dollars, you dilute existing shareholders, by issuing new shares. So, we are not doing that. We’re just opening it up for trading.
ANDREW ROSS SORKIN: So, there is no money raised.
STEWART BUTTERFIELD: No.
ANDREW ROSS SORKIN: You have about $8 million in the bank already. So, this is unusual. Because not a lot of companies can pull this off as such. But also, you are rewriting the model to some degree. Wall Street, I would imagine, did not like this.
STEWART BUTTERFIELD: Everyone says they like it. We’ll see how much they – I don’t know how much they really like it. But, I think there is a lot of investors who are used to a model where they get a small allocation. They wanted a big one. In a direct listing, at least they have the opportunity. And I think you saw that with Spotify. Some early institutional investors taking huge positions on day one, whereas in a traditional IPO they might only got 25 or 50 million.
ANDREW ROSS SORKIN: To the extent there are other companies out there like an Airbnb looking at this to say, ‘Does this work?’ How much are you going to save in fees -- Wall Street fees?
STEWART BUTTERFIELD: The savings aren’t that great to be honest. Like, that’s certainly not the motivator. The big one for us was for not to have to raise more capital. I think there is – you know, one of the hopes for a company like us is that there is not too much volatility. And we are hoping that this model—where there are many sellers, many buyers, supply and demand—we reach a market clearing price a lot earlier.
ANDREW ROSS SORKIN: One of the other distinctions, though, is there is no lockup. Typically, there is lockup on early investors, sometimes employees. You can sell shares into this yourself?
STEWART BUTTERFIELD: I can, although, as a Section 16 officer of a public company, I am not free to just buy and sell.
ANDREW ROSS SORKIN: So, you won’t be selling into this?
STEWART BUTTERFIELD: I have some small sales.
ANDREW ROSS SORKIN: And long-term, though, the other piece of this is sometimes there’s a view that the company will do a do a listing and then do a secondary, which looks like an IPO, later.
STEWART BUTTERFIELD: An IPO. Yeah. That’s certainly possible for us. I think one of the things about being public is it opens up capital markets generally. So not just equity but debt, converts, all kinds of stuff.
ANDREW ROSS SORKIN: Tell us how this changes the company. Does it change it at all?
STEWART BUTTERFIELD: No. I mean, it’s a big day. It’s a nice moment. I do think it’s an especially a nice moment for the team to show appreciation and recognition to one another for all the hard work. For us, we spent the last couple weeks writing thank you notes to customers and sending them out, so they would hopefully arrive around today. But we’re, you know, low-single digit percentage penetrated into what we think is just an enormous market. There’s 10 million daily active users, but there’s a couple hundred million people whose working lives are mediated by e-mail. And they would all be better off with Slack or something like it. So, that’s the focus.
ANDREW ROSS SORKIN: Okay, let’s talk about the valuation. This is a company, I should say, that still loses money. About $138 million. Your revenue, you have a huge revenue number but it’s coming down. We were in the 80-plus percent range. Now, in 2020, you’re predicting it is going to be closer to 50%. How should investors think about that? How should they think about your valuation?
STEWART BUTTERFIELD: I’m not going to give them advice on that. We’re still in the quiet period. But I would say this: so, we, in 2017 – fiscal 2017, 105 million revenue. ’18 it was 220. Last year was a little over 400. We’ve guided from 590-600 this year. So, these are big numbers. And these are numbers that wouldn’t have been private company numbers before. We’re getting to be at scale. And so, the percentage rate of growth I think is, you’ve got to balance that with the absolute number of dollars coming in.
ANDREW ROSS SORKIN: What did you think of the reaction both to the IPO of Uber, which we were sitting here by the way, I think Dara was wearing socks that looked like Slacks socks. You have Slack socks on -
STEWART BUTTERFIELD: I have Slacks shoes on.
ANDREW ROSS SORKIN: Slack shoes on. By the way—Slack shoes—
STEWART BUTTERFIELD: These are Cole Haan, a nice customer of ours. Did you see – behind us, with a bunch of other customers, Molly Moon Ice Cream and Coffee, along with a couple others – made these custom for our listing day.
ANDREW ROSS SORKIN: When you saw the reaction to the Uber IPO, which did not go up, but went down. You thought what?
STEWART BUTTERFIELD: I thought that’s too bad, I guess. I mean, it has nothing to do with us, I don’t think. Investors should be given credit for adjudicating between different companies and looking at them—
ANDREW ROSS SORKIN: In the enterprise space then, let’s talk about Zoom. Because that was an IPO, that Zoom -- 72% on its first day. Do you look at that as a success or a failure? Because they left a lot of money on the table.
STEWART BUTTERFIELD: Yeah. That’s a tough one to call. Because I think now they’re notorious. Right. They got a lot of great publicity out of that and I think they got some good, warm feelings from people. Investors are excited. But, yeah, we’re very focused on ourselves. I mean, we have a big job to do. This is a new category of software. There is not a lot of comps for investors to say ‘It’s just like this, it’s just like that.’ We have a lot of people to convince, a big story to tell. And, I’m not looking so much at what everyone else is doing.
ANDREW ROSS SORKIN: Can we talk, though, about the competition? Because there is a fierce competition going on, and lots of different players, whether you think of Microsoft, which is directly in this space and Facebook which wants to be in this space or is in this space to some degree, and Dropbox, which recently structured itself to be more collaborative. All those have integrations into Slack, so you are almost a Switzerland if you will that brings a lot of these folks in. But I also wonder whether you think yourself at Google decided to flip a switch on G-chat in a different way whether that would become a big competitive threat?
STEWART BUTTERFIELD: They did flip a switch. And the fact that you don’t know that indicates much how competitive threat it is.
ANDREW ROSS SORKIN: But it’s not -- not in the same way. It’s a different product.
STEWART BUTTERFIELD: No, look, they have a competitive product as well, and no one knows about it. So, I think the -- here’s how we look at it: competitor aware, customer obsessed. If we’re right that there are a couple hundred people that are going switch to this model, there’s all different kinds of businesses. We have 95,000 customers. And so, some of them are, you know, big multi-nationals, 100,000-plus daily active users on Slack. Some of them are three-person, five-person startups. Some of them are like a 50-person hotel chain. But there are dentists and tax preparers and government workers and a huge variety of people using Slack. And we’re trying to find out the way to bring this model to different markets, different functional areas, different geographies is the focus.
ANDREW ROSS SORKIN: So, for you, right now, what’s the biggest challenge with the business?
STEWART BUTTERFIELD: The biggest challenge is the one that I think is fundamental of all businesses. And this is super convenient for me because I think it’s something that Slack really helps with which is achieving a kind of alignment and clarity around rules and objectives so we can move fast enough. We have 1,700 employees. The bigger you get, the harder is to coordinate that activity and to really stay focused on the top priorities. I think the transparency in the alignment that comes when companies start using Slack is really helpful in achieving that.
ANDREW ROSS SORKIN: This Switzerland idea is very attractive but I also imagine that you have been attractive as a potential target, acquiring target, that is, from the big guys: the Microsofts of the world, the Salesforces of the world, the Googles of the world. You do have a dual class structure. So, you can protect yourself in that way if you don’t want to do a deal. But what is the thought process around being independent right now?
STEWART BUTTERFIELD: Well, we just see an enormous opportunity. I mean, so, there is me, my preference—my preference is to do this low. It’s just such an enormous privilege and I feel so lucky to have a shot to do it. You know, like very few people will ever get that. I am a fiduciary to our shareholders and they have a responsibility to our employees. So, it’s not the Stewart Butterfield show. I’m not wildly irresponsible. But we have relationships with all of those companies. We have great partnerships with AWS, with Azure inside of Microsoft, with Google—we’ve had a huge amount of work together, with Salesforce. And it’s not like being a public company where you can just write a tender offer and say, ‘We’ll give you this much per share.’ All of the conversations are very tentative. And we have been super clear year after year in a very consistent way that we’re just not interested.
ANDREW ROSS SORKIN: Alright, let me ask you separately, this may be a broader topic. You said to the “Financial Times” two years ago: it’s a strange world, if it was 10-years ago, meaning a decade ago, we’d be public by now. So many of the Silicon Valley unicorns, like yourself, have stayed private for so long. Was that the right decision? Do you think that was a mistake? Some people look at, by the way, the Uber and potentially the Lyft IPO, as had they gone public two years ago, maybe it would have been different, maybe there would have been a greater growth opportunity?
STEWART BUTTERFIELD: Yeah. I think one thing we were clear about is not trying to time the IPO or trying to time a listing event. We believe in our hearts that Benjamin Graham – short-term, the markets are a voting machine, long-term, they’re a weighing machine. It can take time for people to figure it out and wrap their heads around the business. But, I would love to have this job for the next 20 or 25 years. So, hopefully the investing community will have me. And that’s time period where we’re looking to establish what we can do.
ANDREW ROSS SORKIN: Okay. So, for those that don’t use Slack, by the way, we should just say, and we showed us having that conversation with Slack earlier. This is at least the goal I think is to end the world of e-mail as we know it. When will we end the world of e-mail as we know it?
STEWART BUTTERFIELD: Well, so as we know it inside our companies, I think that’s happening faster and faster and faster. And over the next few years, but certainly over the next five-to-seven years, we’ll see a really broader change. The broader world of e-mail, I think, will stick around. But, inside of a company when you have a choice and you can have an inbox which is just very individually oriented, everyone has their own partially fragmented view. Or communicate in what we call channels, where it’s a lot more transparency, it’s a lot more accessible, everyone sees the same thing. And, when someone joins the company, rather than an empty inbox, they have this whole history to scroll through, everyone will choose this.
ANDREW ROSS SORKIN: Do you think so? Because one of the other things is privacy. Which is we’ve moved in a very different world, where it used to be everything was open. And by the way, Slack is very much about being open. It’s about being open with the whole group, everybody on your team seeing everything; it’s full on transparency.
STEWART BUTTERFIELD: Yes.
ANDREW ROSS SORKIN: Do you think we’re moving away from that?
STEWART BUTTERFIELD: Well, I mean, so I nodded my head and said yes when you were saying that. But really it’s a – Slack affords all kinds of flexibility around privacy. You can have workspaces that have only some of your team members on it. You can make channels private, and public. At it takes a little time to negotiate, you know, where conversations should happen so they are the maximum amount of accessibility. But, I think it’s a very flexible platform for that set of concerns. And companies like to operate in totally different ways. Some are regulated. Sometimes there’s an actual Chinese wall. Some companies want to be run in a way that’s maximumly transparent and we give them the flexibility.
ANDREW ROSS SORKIN: You talked about -- you said a Chinese wall. And I was thinking of China.
STEWART BUTTERFIELD: Yes.
ANDREW ROSS SORKIN: Just internationally in terms of the growth prospects, where do you think you can do a lot of business, where do you think it will be a lot tougher?
STEWART BUTTERFIELD: Well, over half our users already are international, or outside the U.S. It’s 35% of revenue. So, a lot of those international users are employees at U.S. multinationals that have big operations outside. But I look at China—sorry, excuse me. I look at Japan, where, you know, I have been five times in the last 18 months or something like that. We have an incredible business -- it’s our second biggest country. And it’s just like on fire. We’re concentrating a lot more on Europe right now. Long term, though, we do think this is a product that should be accessible to everyone in the world. Any different size, every industry, every geography. So longer term, Latin America, Southeast Asia, all of the developing work, we’re excited about that.
ANDREW ROSS SORKIN: And finally, we should just tell the story for those who don’t know, you were running a video. This company was not supposed to be this company?
STEWART BUTTERFIELD: No.
ANDREW ROSS SORKIN: You were trying to create a video game. And that’s how Slack--how did this happen?
STEWART BUTTERFIELD: So, I and three other Co-Founders started the company. We had a couple people in Vancouver British Colombia, a couple people here in New York City and San Francisco. And as the company grew, we built this system for internal communication. Which we didn’t really think about and it wasn’t deliberately designed.
ANDREW ROSS SORKIN: This was to build a video game.
STEWART BUTTERFIELD: Yeah, this was for internal communication inside the company, while we were in the process of building the video game. But, as we added employees, you know, we had business operations, customer support, back end server engineering, people who do creative stuff, writing, animation, music—the degree of collaboration, so, it wasn’t – the end product didn’t hit the market in the way that we hoped, let’s say. But the process was fantastic and we were so effective and efficient. At one point, we realized like, we are never going to work without a system like this again. The rest of the world could probably use this.
ANDREW ROSS SORKIN: We should say the reference price today is going to be $26. What’s success -- at the end of the day when you look at the final price, what is success for you today?
STEWART BUTTERFIELD: Success is there is a freely traded market for equity securities in Slack. I mean, really it’s going open up at something, it’s going to close at something. Same thing will happen tomorrow, same thing will happen Monday. There’s such a big opportunity. That’s got to be where our focus is. It’s been interesting -- everyone is very excited, everyone across the company. And everyone -- we unfurled the banner in front of NYSE yesterday and it was a big moment. Everyone is clapping. But I think that employees are on board with the idea we can’t watch the fluctuations. There is no point. There is so many factors it has nothing to do with us: Fed rates, and the trade wars with China. The macroenvironment is a little hectic. And we’ve got to stay focused on creating value for customers.
ANDREW ROSS SORKIN: I hope you do but I promise you people inside Slack will be Slacking each other about the stock price. You should get an extra emoji for that. Stewart Butterfield, thank you.
STEWART BUTTERFIELD: Thank you.
ANDREW ROSS SORKIN: Good luck today.
STEWART BUTTERFIELD: Thanks.
ANDREW ROSS SORKIN: Thanks so much. Guys, back to you.