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Why Palantir's Public Market Debut Is Bad For Wall Street

By The Daily Upside – Oct 1, 2020 at 8:30AM

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Shares of Palantir and Asana both finished the day above their "reference prices"

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The flood of tech IPOs continued on Wednesday.

But this story, unlike the M&A bonanza described above, is not great news for Wall Street. 

Data-analytics firm Palantir and productivity software company Asana both went public via direct listings on the NYSE yesterday.  The unique structure doesn't come with the same fee structure as a typical IPO. 

Unicorn Land
Palantir specializes in under-the-radar data analytics for government agencies.

  • Palantir gathers data from disparate sources and, using artificial intelligence, processes it to find previously undetectable patterns.  This year, that skill set meant building models to determine where healthcare equipment and workers would be needed most.
  • Palantir's top clients are government agencies such as the CIA and the Department of Health and Human Services. 

Asana's business model is slightly more straightforward. The company offers a productivity app that gathers project management steps into one tool to help teams organize and track their work.

Facebook Friends: Asana is headed by Facebook co-founder Dustin Moskovitz and Palantir was co-founded by Facebook board member Peter Thiel.  High-profile Facebook ties have drummed up further excitement in what were already two of tech's most anticipated stock listings.

NYSE

Photo Credit: Getty Images.


Direct-To-Market
Both Asana and Palantir took an unconventional route to the public markets-going public via a direct listing as opposed to a traditional IPO or fashionable SPAC merger.

Direct listings don't involve raising new capital for companies.  Instead, the exchange provides a "reference price" and existing shares are simply listed on the exchange. 

Unlike a traditional IPO, where existing shareholders are typically subject to a "lockup period" during which their shares are not tradable, existing shareholders in a direct listing can cash out (up to a limit in Palantir's case) on day one.  Good news for local Porsche dealers.

Importantly: Because companies are not raising fresh capital, the deals come without substantial underwriting fees for banks.

The Takeaway: Asana opened well above its $21 reference price at $27, and shares closed at just under $29. Palantir started trading at $10, also a big premium to its reference price of $7.25. After peaking above $11 in the afternoon, shares faded to close slightly below $10.

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