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Slack stock direct listing2/12/2024 The stock has traded up then down then back up again over the last 52 weeks ending up very close to its DPO price today. SPOT already had access to almost unlimited capital being cash-flow positive, which means that the capital raised from this DPO wasn't essential to the future success of the business. Spotify's DPO was successful because the company was already very well-known and distinguished in its category, giving them confidence that the DPO wouldn't go unnoticed. The lack of free-float might have pushed the price beyond its fair value because demand outweighed supply. The one small hiccup that this IPO saw was a lack of free-floating shares on SPOTs listing day (only 5.6% of shares traded) because of how few existing shareholders wanted to sell. The shares opened over 25% higher than NYSE's reference price of $132, and the company closed the day with a $26.5 billion valuation, making it one of the top ten biggest publicly traded tech stocks. SPOTs direct listing was a success, with barely a hitch. One year ago today Spotify launched its DPO on the New York Stock Exchange. A problem that could arise is a lack of free-floating shares if not enough existing stockholders sell on the initial listing day, which could initially drive the stock above its fair value. A direct listing also permits existing shareholders to sell out of there shares immediately with no holding period. A DPO lets everyone get in on the "ground-floor" allowing for a much more natural and equitable public offering. The price of the stock isn't just set by the big banks and institution but by the market which includes smaller retail investors and traders. There is no underwriting fee or greenshoe for Wall Street to profit off of. The advantage of using the DPO format to list shares is that there is no investment bank taking control. With no investment bank making a market for the shares, if there isn't enough interest in the stock than the price could plummet and the capital raised could be significantly less than expected. The exchange takes all the buy and sell orders to come to an opening price for the shares. With a DPO the initial offer price is decided by the market on the day the shares become available. Going with a direct listing over an IPO comes with some significant risks. During the initial sale, the investment bank(s) create a market for the stock, buying and selling shares to keep the price from becoming too volatile. Investment banks charge an underwriting fee anywhere from 3-8% of total offering and usually involves an option for the banks to buy shares at the offer price aka a greenshoe. The shares can either be bought out entirely by the investment bank(s) or sold under Best Efforts Agreement where the bank sells the shares on behalf of the company but doesn't guarantee the amount of capital that will be raised. The goal of the investment bank is to set a price that will be oversubscribed, meaning there is more interest in the stock than shares to be offered. The offer price will be decided by the underwriter based on financial data and the amount of interest that the underwriter was able to collect. The underwriter will gather interest from banks, institutional investors, mutual funds, etc. With the conventional IPO model companies use an investment bank like JP Morgan JPM, Goldman Sachs GS, Morgan Stanley MS, or a syndicate of them, to underwrite their offering. They will be the second major tech company behind Spotify SPOT to do a direct public offering (DPO).Ĭhoosing to go with a traditional IPO gives companies more stability and security. Slack, one of the many anticipate tech companies planning on going public in 2019, has decided to debut their shares to the public through a direct listing on the New York Stock Exchange.
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