Palantir Technologies and Asana are on the IPO docket this week. However, neither is choosing the traditional route to go public; they are opting for a direct listing.
Palantir Technologies is a data analytics software company that was founded in 2003. One of the company’s early investors included the Central Intelligence Agency (CIA), so you could say it has some big clients with some very important data. Asana is a workplace-collaboration software company. It created its web and mobile applications to help teams organize, track, and manage their work. It was started back in 2008 when its founders wanted to create a better way for teams to work on projects without wasting time.
There’s a unique connection between both of these companies: Facebook (NASDAQ: FB). Peter Thiel, the co-founder of Palantir, is a Facebook board member, and Dustin Moskovitz, Asana’s co-founder, is Facebook’s co-founder and former chief technology officer. Both companies will be debuting on the New York Stock Exchange (NYSE) and are expected to go public on Wednesday, September 30.
These two unicorn companies and others like them have been weighing the pros and cons of taking the nontraditional route to go public. Music streaming company Spotify (NYSE: SPOT) and work messaging and collaboration platform Slack (NYSE: WORK) are two former unicorns that have gone public with direct listings over the last few years, so Palantir and Asana aren’t entering totally new territory. Both companies have had a chance to see how other unicorns have benefitted from a direct listing rather than a traditional initial public offering (IPO).
Going public via a direct listing can be a quicker and cheaper process. A company doesn’t need to pay pricey underwriting fees, and since the company is selling existing shares, it leaves room for less speculation and lets existing investors cash in on its stock without any fears that their investment will become diluted by new shares created from an IPO. With a direct listing, a company doesn’t intend to raise any new capital from its public debut.
Palantir will be listed under the ticker symbol “PLTR,” and Asana will be listed under “ASAN.” Both of these companies’ financials indicate that neither has profitability. However, revenue for both has been grown steadily, and they have multibillion-dollar valuations. Palantir is expected to be valued at around $20 billion when it begins trading on Wednesday. Asana’s market capitalization is expected to be a little more than $5 billion.
With these two major, highly anticipated public debuts, we could start to see a shift towards more direct listings and other ways of going public. If these two direct listings prove to be successful, the IPO market will change a lot.
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Renaissance Capital analysts say:
IPO alternatives will likely continue to cover ground going forward. Palantir’s and Asana’s performances could change the market view on direct listings.
Last month, the Securities and Exchange Commission (SEC) approved new rules that would allow companies to raise capital by issuing new shares through direct listings instead of just listing existing stock from the company. The rule is currently on hold after the Council of Institutional Investors objected and requested a review by the SEC.
Alternative ways of going public have been a common theme this year. We’ve seen a lot of special-purpose acquisition companies (SPACs), also known as blank check firms, deals in 2020. These types of deals allow startups to go public through mergers with an already public SPAC. SPAC Research recently counted 183 active blank-check companies, including 139 that are searching for acquisition targets. Just like IPOs, these deals aim to raise new capital.
It’s important to note these big startups are looking for new ways to go public because the IPO process can be grueling, expensive, and not entirely beneficial to a startup. With new ways of going public either through a direct listing or merging with a blank check company, private companies have other options that could help founders, employees, and investors in the long run — possibly paving the way to a better future.
It has been a massive second half of the year for software companies going public. According to Bloomberg, software companies have raised $12.8 billion of the $102 billion total raised on the U.S exchanges this year. The software company Snowflake (NYSE: SNOW) raised $3.86 billion and was up 91% this past Friday. Shares of Unity Software (NYSE: U) raised $1.5 billion and climbed 73%. Without a doubt, this Wednesday is going to be a big day for both Palantir Technologies’ and Asana’s direct listings.
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Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
