Slack to Spotify: See You on Wall Street
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What is Slack planning for going public and why does it matter?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. In many U.S. offices, Slack is the new instant message, the efficient way to communicate with coworkers. And if all goes according to plan, it'll soon be a newcomer on Wall Street. But it doesn't plan to play by the rules. We'll explain in a moment. First, these money and market stories you should know. The weather outside was frightful in December, but there was more money inside your wallet thanks to higher wages, along with low inflation and low gas prices. Average hourly earnings rose a seasonally adjusted 1.1% in December from a year earlier. That's the strongest rate of growth since September 2016. And in the 12 months through December, overall prices rose 1.9%.
That's the first time the Consumer Price Index has been under 2% since August 2017. And speaking of low inflation, it's getting cheaper to buy avocados. In fact, demand for produce in the tomato, berry, and avocado categories has come down so much, shares in Australian agricultural company Costa Group fell 36% in one day last week after warning it could miss earnings targets.
The latest tune on Spotify may as well be Follow the Leader. The company went public through a direct listing and sidestepping the traditional IPO process. And now the workplace instant messaging app Slack is looking to do the same. Wall Street Journal reporter Maureen Farrell is here with details. So Maureen, just to catch us up, how does a direct listing differ from a traditional IPO?
Sure. So I'll start in the traditional IPO. A company goes out, decides it wants to raise a certain amount of money, plans to sell those shares to investors.
What recent economic headlines set the stage for this Slack announcement?
And typically the underwriters, the Wall Street middlemen, essentially decide who's going to get them at the IPO price and, you know, help guide to an actual price. In the direct listing, essentially, and it's a little bit more complicated than this, but a company just goes public. It doesn't raise any money. Suddenly, just one day, it flips on, and investors, employees can sell their stock on the public market, and anyone can buy.
And not a lot of companies have done this. Spotify was fairly successful in doing it, though.
Yes, they were. I mean, the question, there was just a sense that there could be this huge glitch or there wouldn't be enough buyers or there wouldn't be enough sellers or tons of volatility. None of that happened. It was incredibly smooth. It was almost less volatility with Spotify's opening day than a lot of a lot of IPOs we've seen.
And you report that Slack is interested in doing the same, but its plans could actually change.
It could. But right now their plan is to go down that route.
And then it's got nothing to do with the government shutdown now that's sort of derailing IPOs in January, delaying them to later in the year. It's unrelated to that?
It is unrelated to that. They've been thinking about this and kind of plotting the possibility of this for a while, but only recently decided to actually move forward down this path.
And Slack has raised a significant amount of cash.
Exactly. And that's a big part of it, and they haven't spent a lot of it. So they've raised more than a billion dollars. They still have a lot on their balance sheet, so they don't have to go to the market to go get new money. They just want their shares to be public.
And they're projecting that over time their valuation could come out to $7 billion. That's just, I mean, they're looking down the horizon, but that's something that they have in mind?
Well, that's their valuation already. When they've raised money in the private markets, they've raised it most recently at a valuation of $7 billion. Their expectation, and obviously this could change up until the minute it starts trading, is that they would get a valuation in excess of that. But, you know, clearly that's for the market to determine. And as we've seen, there's been a ton of volatility just in the broader market.
Oh, sure.
Yeah. But I would just say as far as that goes, I mean, there's been a lot of questions for a long time about whether these companies can achieve the valuations they had in the private markets when they go public.
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Chapters
4 chapters
1
What is Slack planning for going public and why does it matter?
0:05–1:53
2
What recent economic headlines set the stage for this Slack announcement?
1:53–5:49
3
How did Spotify’s direct listing change expectations for public offerings?
5:49–7:23
4
How does a direct listing differ from a traditional IPO in practice?
7:23–8:12
Speakers
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