Direct Listing

Once uncharted territory, pursuing a direct listing is becoming less and less an anomaly. “An IPO is no longer a one-size-fits-all path to public,” according to the New York Stock Exchange

A series of recent high-profile IPO failures of companies valued sky-high in the public eye have proven that a successful IPO isn’t guaranteed. Companies like Uber, Lyft, Endeavor, and Peloton all had highly anticipated IPOs that ended in failure. For example, on its first day of trading, Peloton’s stock plunged 11%. Uber’s shares dropped more than 7% on opening day in May 2019, continuing to slide. (Since then, it has recovered to nearly its introductory value.) At the eleventh hour (the day before it was scheduled), Endeavor decided not to go forward with its IPO. What was once the “only way” to go public is proving more and more not to be a foolproof step forward. 

This series of public, lackluster performance seems to be a cautionary tale.  And, while a direct public offering sounds fret with opportunities for things to go wrong, high-profile companies like Spotify and Slack are proving otherwise. 

Here’s what you should know. 

What is a direct listing?

A direct listing or DPO (direct public offering) is a less conventional way to go public. What makes a direct listing so unusual? First, it allows companies to go public without raising capital, making it much different than an initial public offering (IPO). 

In an initial public offering (IPO), companies establish an initial public stock price. By offering public ownership, IPOs are able to raise capital from public investors. To do so, a company will offer a certain amount of new and/or existing shares to investors.

Typically, stocks are sold by one or more banks that act as underwriters. These banks also help to market the company, including to institutional investors on a “roadshow” to the tune of millions of dollars. Institutional investors then filter the shares to the larger market, such as the NYSE, for example. In this somewhat exclusive process, only then do the shares become truly available to the public. 

Following the IPO big debut, early investors are typically barred from selling their shares for 90 to 180 days, also known as a “lock-up period.” This has the potential to limit how much money those investors can make on the sale of their stock, which is determined by how the price of the stock fares in the public market.  

A DPO skips the step of working with an investment bank to underwrite the issue of stock. Rather, “existing stakeholders basically sell their shares to new investors.” In other words, the company doesn’t have to go through the hoops of marketing the company or selling stock to raise cash before the stock goes public. This makes it faster and less expensive than a traditional IPO. It also equalizes the playing field because the stock is openly listed on the market, therefore accessible to everyone. 

It should be stated that once a company is listed, even by way of DPO, the company then becomes subject to the “reporting and governance requirements applicable to publicly traded companies” as mandated by the Security Exchange Commission.

Why are more and more companies choosing DPOs?

By using the less conventional DPO, companies can save a lot of cash— by skipping the IPO process, there is no need to pay banks huge underwriting fees. 

But, even though there are major cost savings, DPOs are not ideal for every company. What happens if the stock for your little-known company arrives on public markets and no one knows what your company is?

The likelihood is, no one will buy it. 

And, without the IPO process, there’s no initial price established by underwriters.  For this reason, companies that pursue a DPO generally have better luck if they have “a lot of money and brand recognition.

Another major perk of a DPO is that there is no lock-up period. For early investors, including employees who may have accepted shares in the early days of a company to offset for a lower startup salary, the opportunity to sell shares right away when the stock might hold the most value is a huge perk. 

To this point, because no new shares are created in advance of trading, the dilution of existing stock value is prevented. 

DPOs are not without risk, however. For one, price volatility, even in the best of circumstances, can be enough to scare companies off.  In a DPO, a reference price is typically established by “buy and sell orders collected by the applicable exchange from various broker-dealers.” However, without the support of underwriters who set an initial price, the stock becomes dependent on market conditions and demand. 

Moreover, because the number of shares available on the market in a DPO is determined by the number of shares that employees and investors choose to list, there can be less control overall. 

Consider Spotify, which successfully pursued a DPO. The stock hit the market at $165.90 in April 2018. On its introductory day, Spotify was ready with a reference price of $132. Even though it had plenty of brand recognition, there was worry that shares flooding the market without a price established by underwriters could lead to a steep fall. 

On its first day on the market, it closed at $149. A little more than two years later, the stock is currently trading at $260.44.

Spotify is not alone in its DPO success, though. Slack had similar success after its direct listing in June 2019.

If an IPO seemed like the bar for startup success before, that’s no longer the case. Earlier this spring, Asana filed to go public via direct listing. Other companies that have been rumored to pursue a direct listing include DoorDash, Airbnb and GitLab. Needless to say, looking forward, it is quite possible (if not probable) that the DPO approach becomes a well-traveled path for companies aspiring to go public. 

Investing in direct listings

For investors, there is functionally little difference between buying shares in an IPO vs. a direct listing. The difference comes in the source of those shares and the way they are priced at the start.

By converting insider ownership shares into publicly-listed stock, pricing on a direct listing can be volatile and a difficult way to access new companies. For investors looking to get into the IPO and DPO market without taking this risk, a search on Magnifi suggests that there are a number of different options in ETFs and mutual funds.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


There's Alpha in Asia

“Made in China” is a phrase we all know well, but American shopping aisles bursting with “Made in China” goods are becoming more and more a thing of the past, especially as the depth and breadth of Asia’s economies develop. The truth is, this is not just a China story anymore— it’s a story of a new Asia bursting with emerging economies, high-tech industry, and a growing middle class.

Consider that the United Nations estimates that as of July 2020, Asia as a whole has a population of more than 4 billion. That amounts to about 60 percent of the world’s current population.

Asia is growing and its enormous population is buying more and more of its own stuff than ever before. It is estimated that “Asian-Pacific (APAC) countries will have seen a growth in their middle-classes by over 500 percent in the 20 years up to 2030.” This increased buying power will be nothing short of transformative, especially compared with 2 percent growth in Europe and a decline of nearly 5 percent in America over the same period.  

Asia’s global output is up 26% from the early 2000s and, according to McKinsey and Company, “Asia is on track to top 50% of global GDP by 2014 and drive 40 percent of world’s consumption.”

This growth isn’t just thanks to China, but small and medium-sized countries throughout the region, as well. Asian business hubs stretch from Singapore to Jakarta, Kuala Lumpur and Manila. In fact, according to an analysis by The Financial Times, Indonesia is on pace to overtake the world’s sixth-largest economy, Russia, by 2023. 

Not to mention, Asian exports are not reliant on the United States. Moreover, China’s total exports amount to 40% of the world’s consumption. Although exports to the United States fell by more than 8%, they remained about the same from 2018 to 2019. In other words, China was able to compensate for the drop in exports to the US by exporting more to the rest of the world. 

Yes, the region is seeing some political instability in 2020, with protests and crackdowns roiling Hong Kong and other parts of China. But, given the growth that’s happening alongside this, it will take more than that to slow down the Asian expansion.

What’s changing in Asia’s markets?

China is no longer simply making the cheap plastic toys that it may have once been known for. Rather, its products are increasingly high-tech and sophisticated. 

That means two things: The first is that in China, wages are on the rise. The second is that there is a new space globally for low-cost manufacturing that once belonged solely to China. 

Vietnam’s exports are up 96% since 2015, a surge led by the export of low-cost textiles. (It’s worth noting that Vietnam is also home to a global manufacturing base for Samsung.)

In India, Prime Minister Narendra Modi launched the “Make in India” initiative with the goal of developing India into a manufacturing hub that is recognizable on the global scene. And it seems to be working, with India’s exports up 22.5% since 2015.   

All of that manufacturing would literally go absolutely nowhere without streamlined logistics, however. “The logistics industry accounts for 15-20% of GDP in Vietnam and is expected to grow up to 12 percent in Indonesia.” In large part, this growth is thanks to both increased investment and streamlined e-commerce. 

Why invest in Asia?

Asia might be set to overcome the West as a center of trade and commerce, but it’s not there yet. And it’s not without challenges. Many countries that are home to emerging markets have also become home to the challenges of emerging countries.

Take infrastructure, as an example. 

Paired with challenging geography, poor roadways can devastate supply chains. But, supply chain challenges like those found in Asia can largely be overcome by technology solutions, such as Route Optimization, Predictive Alerts, AI-based forward and reverse logistics, and smart shipment sorting. Additionally, infrastructure spending is on the rise in Southeast Asia, through the formation of institutions such as the Asian Infrastructure Investment Bank and the Japan Infrastructure Fund.  

Countries like Indonesia have shown that economic growth for smaller, emerging countries is sustainable. Not only is Indonesia rich with natural resources, it is committed to specialized manufacturing including that of machinery, electronics, automotive and auto-parts. The country has slashed its “poverty rate by more than half since 1999, to 9.4% in 2019.” It’s most recent economic plan implemented in 2005 was for 20 years, broken into 5 year increments.

In all, the Asian continent, with its emerging middle class, increased focus on high-tech manufacturing, and participation by lesser-known counties, has long-term growth potential. And, with this momentum already in full swing, the future looks bright for countries across the continent.

That’s what happens when emerging markets “emerge” all the way into fully developed economies.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


GE

General Electric (GE)

It’s been a long and winding road for General Electric (GE), one of the first 12 companies to be included as part of the Dow Jones Industrial Average when the list was first launched in 1896. Founded by none other than Thomas Edison, who created the Edison Lamp Company in the late 1880s to market his newest innovation, the electric lightbulb, GE as a company was formed in 1889 by Edison’s financial backers, including J.P. Morgan and the Verderbilt family, as a way to support all of the various applications for electricity that were emerging at the time. In the early days, those applications included everything from railroads, to radio, to power generation and more.

Today GE is one of the largest conglomerates in the world, with interests in aviation, healthcare, renewable energy, additive manufacturing, financial services and, of course, electric lighting.

For 2018, GE’s worldwide revenue was more than $121 billion, placing it 18th on the Fortune 500 list of the largest U.S. companies by revenue. It employs more than 230,000 people across 130 countries.

Rationale

For more than a century, the most direct way to gain exposure to General Electric has been to buy its listed shares. But lately there have been a number of good reasons for investors to reconsider that approach. For one thing, GE was delisted from the Dow Jones Industrial Average in 2018 after its enterprise value was nearly cut in half in 2017 following years of disappointing financial results. Between 2016 and 2018, the company lost 74% of its market cap, due in large part to bad moves in its power generation business.

However, investors interested in gaining exposure to the sectors that General Electric competes, rather than buying GE shares themselves should consider buying funds that provide exposure to General Electric and other conglomerates. After all, the return drivers that will benefit GE might also benefit other similar companies in aviation, manufacturing, consumer staples and more. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like General Electric through these types of funds.

Investing in GE

A search on Magnifi suggests that investors can gain access to GE via a number of different funds and ETFs, including those shown below.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.] 


bac

Bank of America (BAC)

Despite its name, Bank of America (BAC) actually isn’t the largest bank in the United States. That honor actually goes to JPMorgan Chase, which has $2.74 trillion in assets. Bank of America is number two, with $2.38 trillion, as of 2018, making it the eighth largest bank in the world. And, despite its name today, it traces its roots back to two divergent banks – Bank of Massachusetts on the east coast, founded in 1784, and Bank of Italy, a San Francisco-based bank for Italian immigrants, founded in 1904.

The bank as it’s known today was formed in 1998 after the merger of NationsBank and BankAmerica, and it is today part of the Big Four of U.S. banks, serving more than 10% of all American deposits and offering services in commercial banking, retail banking, wealth management and investment banking. Its subsidiaries include Merrill Lynch and it operates branches in all 50 U.S. states, more than 15,000 ATMs machines and serves more than 46 million customers.

Bank of America’s market cap is $296 billion as of 2019, and it generated more than $91 billion in revenue in 2018.

Rationale

The most direct way to gain exposure to Bank of America is to buy its listed shares, of course, but there are reasons for investors to reconsider that approach. As a bulge bracket bank, BAC operates in a highly regulated space, subject to ongoing government oversight and scrutiny. This helps to protect its customers and other participants in the financial system from loss due to corporate misdeeds, but limits BAC’s potential for growth as a business itself. What’s more, Bank of America received a bailout during the 2008 financial crisis, highlighting its susceptibility to worldwide financial problems that have not entirely gone away in the years since.

However, for investors interested in gaining exposure to the banking sector, rather than buying BAC shares themselves should consider buying funds that provide exposure to Bank of America and other financial services firms. After all, the return drivers that will benefit BAC might also benefit other similar banks. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like Bank of America through these types of funds.

Investing in BAC 

A search on Magnifi suggests that investors can gain access to Bank of America via a number of different funds and ETFs, including those shown below. 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]      

 

 

 


payments

Visa (V)

Visa (V) is a financial services company that oversees a worldwide network of electronic fund transfers, through its Visa-branded credit cards, debit cards and prepaid spending cards. The company is an intermediary, working with banks and other financial institutions to offer Visa-branded financial services products for their customers. It was created in 1958 as a Bank of America spinoff, which first introduced the idea of an all-purpose credit card that could be used at a variety of merchants, rather than the revolving credit accounts that were popular at the time but limited in their use.

Visa’s products generally break down into three categories: debit cards, credit cards and prepaid cards. It also operates the Plus network of ATM machines as well as the Interlink EFTPOS point-of-sale network. In addition, Visa provides direct commercial payment solutions for a range of B2B users and, in 2014, partnered with Apple to support the iPhone maker’s Apple Wallet spending feature.

Visa operated the world’s largest card payments network until 2015, when it was surpassed by UnionPay, a Chinese credit card processor. Today the company has operations worldwide and processes more than 100 billion transactions every year. As of 2018, its revenues were more than $20 billion on a $280 billion market cap.

Rationale

The most direct way to gain exposure to Visa is to buy its listed shares. But investors have good reason to reconsider that approach given Visa’s exposure to the global financial system as a whole. As the second-largest financial services network operator in the world, V grows alongside overall global growth. But, when that consumer spending slows, so does Visa’s long-term growth plans.

However, for investors interested in gaining exposure to the financial services sector, rather than buying V shares themselves should consider buying funds that provide exposure to Visa and other similar firms. After all, the return drivers that will benefit V might also benefit other similar firms in financial services that are better diversified. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like Visa through these types of funds.

Investing in V 

A search on Magnifi suggests that investors can gain access to Visa via a number of different funds and ETFs, including those shown below. 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]      

 

 

 


Citicorp (C)

One of the largest financial services companies in the world, Citicorp (C) is also the parent company of one of the oldest banks in the U.S., Citibank, which can trace its roots back to the City Bank of New York, founded in 1812. Citibank today has more than 2,600 branch locations in 19 countries, although most of its operations are focused in the United States and Mexico.

Formed by the merge of Citicorp and Travelers Group in 1998, Citicorp’s business can today be split in two – investment banking and financial services, both tied to each of the original partner companies. Citicorp is the third largest bank in the U.S. and is considered a “systemically important financial institution” by U.S. regulators, placing it on the “too big to fail” list, leading to its government bailout in 2009.

As of 2019, Citi has more than 200 million customer accounts and offices in more than 160 countries. Its revenues for 2018 totaled more than $72 billion.

Rationale

As a Big 4 financial institution, naturally the simplest way to gain exposure to Citicorp is to buy its listed shares. But given Citi’s rocky history in recent years, that can open investors up to excess risk. Citicorp was the recipient of more than $300 billion in bailout funds in the wake of the 2008 financial crisis and, although operations have stabilized since then, its business is largely left to the whims of the global financial system. Given its size, there is little Citigroup can do to outperform its peers directly.

A solution that can dampen some of that volatility is to buy funds that provide exposure to Citicorp and other similar firms, rather than C shares themselves. After all, the return drivers that will benefit Citi might also benefit other similar firms in financial services. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like C through these types of funds.

Investing in C

A search on Magnifi suggests that investors can gain access to C via a number of different funds and ETFs, including those shown below. 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]