09/17/2020

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Palantir and Asana’s Direct Listings This Week



What Is a Direct Listing?

Investors are carefully watching two unicorn startups as they debut on the New York Stock Exchange today. Palantir Technologies (PLTR), a software company specializing in big data analytics, and Asana (ASAN), a work management software company, will both list today.

Both companies opted for a direct listing rather than a traditional IPO or a blank check merger. With a direct listing, no new shares of the company are created and only existing shares are sold. Direct listings also do not involve underwriters, making them a less expensive, but sometimes riskier option. Going public with a direct listing is also usually a faster process that involves less scrutiny than an IPO.

Looking at Other Companies’ Choices

Many companies have had success going public through traditional IPOs this year, like software company Snowflake (SNOW). Others, like DraftKings (DKNG), benefitted from merging with SPACs. Palantir and Asana are breaking these trends, and will follow in the footsteps of Spotify (SPOT) and Slack (WORK), which both used direct listings to go public in 2018 and 2019, respectively.

Palantir and Asana are not profitable, but their revenue is growing fast and they are both expected to garner multibillion dollar valuations. Palantir’s market value is expected to be over $20 billion, and Asana’s market cap will be over $5 billion.

Direct Listings Could Become More Common

Other companies considering options for going public will be watching closely to see how these direct listings unfold. More companies could follow in Palantir and Asana’s footsteps—especially if the rules surrounding direct listings change.

Last month, the SEC approved new regulations that would allow companies to raise money by issuing new shares through direct listings instead of just selling existing shares. The Council of Institutional Investors objected to the change, and it is currently under review. This change does not impact Palantir and Asana, since they are only selling existing shares, but it would affect companies thinking about pursuing a direct listing, and it could make this a more popular strategy for going public.


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