09/17/2020

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A Wave of Public Debuts Is on the Way



A Limited Supply

Several of the largest private companies in the world are gearing up to go public. Among them are Palantir, Airbnb, Ant Financial, DoorDash, Asana, and Snowflake.

Investors are hungry for new public companies, as evidenced by several successful public debuts this summer. After the IPO market stagnated at the beginning of the pandemic, it has come roaring back with debuts from companies like Warner Music Group (WMG) and ZoomInfo (ZI). In one of the most dramatic IPOs this summer, ecommerce software provider BigCommerce (BIGC) saw its shares rocket up by nearly 500% since it began trading.

Over the past 20 years, the number of public companies has dropped by about 50%. Meanwhile, venture-backed companies valued at over $1 billion, which are often referred to as unicorns, are piling up. There are currently about 2,000 companies trading on the Nasdaq or the New York Stock Exchange valued at $1 billion or more. There are almost 500 unicorns, meaning that if they all went public at once, the amount of large cap companies listed in the US would increase by 25%. For these reasons, when one of these unicorns does go public, investors tend to pounce.

The Possibility of More Direct Listings

The flurry of companies going public this fall could involve more direct listings than markets have seen recently. Slack (WORK) and Spotify (SPOT) went public through direct listings in 2019 and 2018, respectively. Not many other companies have followed suit, but there is speculation that this could change.

A direct listing is different from an initial public offering because no new shares are created when a company chooses to debut with a direct listing—the company only sells existing, outstanding shares. A company might choose this method if it doesn’t want to dilute its shares, it does not want to pay a cut of its earnings to an underwriter, or it wants to avoid getting stuck with lockup agreements.

Asana, a work management software company, and Palantir, a data analytics firm, are both planning to go public through direct listings. Other companies could follow their lead.

SPACs May Help With Some Debuts

Special Purpose Acquisition companies, or SPACs may also play an important role in the upcoming wave of listings. Recently, sports betting company DraftKings (DKNG) and electric truck maker Nikola (NKLA), went public by merging with SPACs. This method of going public is attractive to some companies because it sometimes provides a faster, less scrutinous way to IPO.

Most years, the week after Labor Day marks the start of a push to close IPO deals before the holidays. This year, it could be even bigger than usual.


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