What’s Beating the Market? Direct Listings — which have outperformed the market average
Companies that went public via direct listing outperformed the market average and beat those that went public using the traditional IPO.
What are direct listings? Direct listings are an alternate way for a company to go public vs. an IPO or SPAC. Here’s one of the biggest differences between the two:
- IPO: The Company going public issues new shares to the public and raises additional cash for growth.
- Direct Listing: The Company going public doesn’t raise any cash — existing shareholders sell stock to the public instead.
According to an analysis by Professor Jay Ritter of the University of Florida (via WSJ), 8 of 10 companies that used direct listings have risen an average 64.4% from opening trading prices. In the same time period:
- The S&P 500, which tracks the ~500 largest US companies, gained 26.8%.
- The Renaissance Index — which tracks the return of the largest US newly public companies — gained 31.1%.
Why have they done better? According to Jay Ritter, “It reflects the fact that the group that’s chosen to do direct listings is a really high-quality group of companies”.
These companies tend to be in better financial shape than those going public through a traditional IPO seen in the fact they don’t need to raise additional capital. Some of the top-performing direct listings and their stock performance since going public in Oct 2020:
- Asana (NYSEASAN), the work management app — is up 200%.
- Palantir (NYSE:PLTR), the big data company — is up 180%.
Other direct listings include: Roblox (NYSE:RBLX), Coinbase (NASDAQ:COIN), Ziprecruiter (NYSE:ZIP).
Incoming direct listing: Last week, Warby Parker (NYSE:WRBY) announced plans to go public via direct listing.