un-SLACKing Off the IPO market

Updated: February 21, 2021

We are only halfway through the year and we have already witnessed some of the most exciting companies going public this year. Some stocks received a warm embrace from investors while some did not receive the love they were hoping for.

Beyond Meat stock is currently trading almost 3 times its IPO price; while Lyft trades below its IPO price despite being one of the most awaited IPOs of the year.

Tech stocks are undoubtedly the hottest news on the IPO market in 2019. We already have some of the biggest tech companies such as Uber, Lyft, Zoom Video Technologies, Luckin Coffee, Slack, and Fiverr go public this year. With other big names including WeWork to follow later in the year.

Slack, unlike other companies that went public this year, opted for direct listing instead of going for an IPO, making them the second large venture capital-backed business to do so.

This direct listing allowed them to begin trading by selling existing shares held by investors, insiders and employees and bypass the exorbitant fees associated with initial public offerings like completing roadshows or hiring investment bankers.

Slack and its Investors

Slack’s biggest outside investors include Andreessen Horowitz, Accel, Social Capital and Softbank who own large amounts of the company’s outstanding shares, so they do not necessarily need to worry about less traditional private company backers not wanting to buy its shares as they are too busy trying to offload some.

Just recently, Slack shares rallied bringing back more optimism to the share price. Even though venture capitalists have been known to pounce on every opportunity to invest in a growing startup with ballooning valuation, retail investors and Wall Street have been very reluctant in giving into the future that these companies envision.

Back in the day when Mastercard was listed, the IPO was priced at $39, $1 below its pricing range all because Vonage had gone public a day earlier and performed poorly.

However, Mastercard closed at $46 on its first trading day and eventually tripled in a year and risen sixfold in five years. And while this may or may not be the case, it does raise the question about investor rationality in identifying value investments at times of uncertainty.

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