The incredible first-day action in the share prices of recent technology initial public offerings – particularly DoorDash and Airbnb last week – has reignited a debate that goes back to the dot-com era over whether the process is broken.
Critics are blaming bankers for vastly mispricing the offerings, resulting in companies missing out on money they could have pocketed at a higher valuation.
There is something to that, but it is not just about pricing. There is a simple solution that can bring better results for all stakeholders.
And it explains why two promising listing candidates have now pressed pause on their plans.
DoorDash and Airbnb soared in their trading day debuts, rallying 86 per cent and 113 per cent, respectively, from the IPO prices at which they raised funds. The spikes happened even after underwriters tried to find a more accurate assessment of demand by using a new online system that allowed institutional investors to enter order details.
However, it did not work as it failed to anticipate the overwhelming demand from the Robinhood set of retail investors.
The giddy reception was exciting to watch, but it has downsides that go beyond leaving money on the table.
The elevated price levels after the first day of trading will probably mean more volatility going forward, which could distract management and employees from doing their jobs.
Also, it becomes more difficult to hire new talent as share-option grants are set at frothy levels.
For these reasons, it is perhaps understandable that two companies originally on this year’s IPO calendar – video-game platform Roblox and FinTech start-up Affirm Holdings – reacted to last week’s big pops by delaying their offerings to assess their options.
The hold-ups can't be attributed to a lack of demand; both Roblox and Affirm are growth stories and investors were looking forward to the offerings. Instead, the delay comes as both companies consider selling a larger amount of shares from employees and other investors, according to the Wall Street Journal. They are on to something.
While price is an important input in the IPO equation, a main driver of the volatility in new stock listings is the scarcity of tradeable shares.
In most traditional IPOs, including for DoorDash and Airbnb, companies sell 10 per cent or less of their shares, with the remainder not becoming available to sell for another six months under insider “lock-up” agreements.
And because the average retail investor is not doing a careful valuation analysis on IPOs these days, it creates a supply-demand imbalance, resulting in those initial surges.
How can companies mitigate this issue? The first and easiest solution is to offer more shares. Lock-ups are an anachronism from decades past, when bankers believed new offerings required time before the market could handle insiders selling their shares.
However, it mechanically exacerbates volatility for the six-month lock-up period, limiting price discovery to the more accurate supply-demand market-based price.
While price is an important input in the IPO equation, a main driver of the volatility in new stock listings is the scarcity of tradeable shares
Companies, instead, should ease lock-up restrictions, allowing bigger unlocks earlier in the offering process, preferably on the first day.
This will also provide a chance for their hard-working employees to reap some gains on stock they earned, enabling them to diversify their holdings.
The most elegant solution is a modified direct listing that is under consideration by the Securities and Exchange Commission. Direct listings allow companies to circumvent the traditional high-fee-laden Iisting process and make all their shares available for sale to the public.
The one big limitation under this method is that companies are not allowed to raise capital at the same time by selling newly created stock.
But the New York Stock Exchange is proposing a rule that will allow companies to do so. And because most direct listings do not have any lock-ups, there is better price discovery from the start.
We all learnt the basic relationship between supply, demand and prices in economics class. It is about time that IPO hopefuls and their underwriters take the lesson to heart. The traditional way of selling stock may have worked in the past, but it may not be the best way now.
From Europe to the Middle East, economic success brings wealth - and lifestyle diseases
A rise in obesity figures and the need for more public spending is a familiar trend in the developing world as western lifestyles are adopted.
One in five deaths around the world is now caused by bad diet, with obesity the fastest growing global risk. A high body mass index is also the top cause of metabolic diseases relating to death and disability in Kuwait, Qatar and Oman – and second on the list in Bahrain.
In Britain, heart disease, lung cancer and Alzheimer’s remain among the leading causes of death, and people there are spending more time suffering from health problems.
The UK is expected to spend $421.4 billion on healthcare by 2040, up from $239.3 billion in 2014.
And development assistance for health is talking about the financial aid given to governments to support social, environmental development of developing countries.
TCL INFO
Teams:
Punjabi Legends Owners: Inzamam-ul-Haq and Intizar-ul-Haq; Key player: Misbah-ul-Haq
Pakhtoons Owners: Habib Khan and Tajuddin Khan; Key player: Shahid Afridi
Maratha Arabians Owners: Sohail Khan, Ali Tumbi, Parvez Khan; Key player: Virender Sehwag
Bangla Tigers Owners: Shirajuddin Alam, Yasin Choudhary, Neelesh Bhatnager, Anis and Rizwan Sajan; Key player: TBC
Colombo Lions Owners: Sri Lanka Cricket; Key player: TBC
Kerala Kings Owners: Hussain Adam Ali and Shafi Ul Mulk; Key player: Eoin Morgan
Venue Sharjah Cricket Stadium
Format 10 overs per side, matches last for 90 minutes
When December 14-17
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
UAE currency: the story behind the money in your pockets
HOSTS
T20 WORLD CUP
2024: US and West Indies; 2026: India and Sri Lanka; 2028: Australia and New Zealand; 2030: England, Ireland and Scotland
ODI WORLD CUP
2027: South Africa, Zimbabwe and Namibia; 2031: India and
Bangladesh
CHAMPIONS TROPHY
2025: Pakistan; 2029: India
ELIO
Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett
Directors: Madeline Sharafian, Domee Shi, Adrian Molina
Rating: 4/5
Killing of Qassem Suleimani
WHAT FANS WILL LOVE ABOUT RUSSIA
FANS WILL LOVE
Uber is ridiculously cheap and, as Diego Saez discovered, mush safer. A 45-minute taxi from Pulova airport to Saint Petersburg’s Nevsky Prospect can cost as little as 500 roubles (Dh30).
FANS WILL LOATHE
Uber policy in Russia is that they can start the fare as soon as they arrive at the pick-up point — and oftentimes they start it even before arriving, or worse never arrive yet charge you anyway.
FANS WILL LOVE
It’s amazing how active Russians are on social media and your accounts will surge should you post while in the country. Throw in a few Cyrillic hashtags and watch your account numbers rocket.
FANS WILL LOATHE
With cold soups, bland dumplings and dried fish, Russian cuisine is not to everybody’s tastebuds. Fortunately, there are plenty Georgian restaurants to choose from, which are both excellent and economical.
FANS WILL LOVE
The World Cup will take place during St Petersburg's White Nights Festival, which means perpetual daylight in a city that genuinely never sleeps. (Think toddlers walking the streets with their grandmothers at 4am.)
FANS WILL LOATHE
The walk from Krestovsky Ostrov metro station to Saint Petersburg Arena on a rainy day makes you wonder why some of the $1.7 billion was not spent on a weather-protected walkway.
WWE TLC results
Asuka won the SmackDown Women's title in a TLC triple threat with Becky Lynch and Charlotte Flair
Dean Ambrose won the Intercontinental title against Seth Rollins
Daniel Bryan retained the WWE World Heavyweight Championship against AJ Styles
Ronda Rousey retained the Raw Women's Championship against Nia Jax
Rey Mysterio beat Randy Orton in a chairs match
Finn Balor defeated Drew McIntyre
Natalya beat Ruby Riott in a tables match
Braun Strowman beat Baron Corbin in a TLC match
Sheamus and Cesaro retained the SmackDown Tag Titles against The Usos and New Day
R-Truth and Carmella won the Mixed Match Challenge by beating Jinder Mahal and Alicia Fox
Indoor cricket in a nutshell
Indoor Cricket World Cup - Sep 16-20, Insportz, Dubai
16 Indoor cricket matches are 16 overs per side
8 There are eight players per team
9 There have been nine Indoor Cricket World Cups for men. Australia have won every one.
5 Five runs are deducted from the score when a wickets falls
4 Batsmen bat in pairs, facing four overs per partnership
Scoring In indoor cricket, runs are scored by way of both physical and bonus runs. Physical runs are scored by both batsmen completing a run from one crease to the other. Bonus runs are scored when the ball hits a net in different zones, but only when at least one physical run is score.
Zones
A Front net, behind the striker and wicketkeeper: 0 runs
B Side nets, between the striker and halfway down the pitch: 1 run
C Side nets between halfway and the bowlers end: 2 runs
D Back net: 4 runs on the bounce, 6 runs on the full
RACE CARD
5pm: Sheikh Mansour bin Zayed Al Nahyan Racing Festival Purebred Arabian Cup Conditions (PA); Dh 200,000 (Turf) 1,600m
5.30pm: Sheikha Fatima bint Mubarak Cup Conditions (PA); Dh 200,000 (T) 1,600m
6pm: Sheikh Sultan bin Zayed Al Nahyan National Day Cup Listed (TB); Dh 380,000 (T) 1,600m
6.30pm: Sheikh Sultan bin Zayed Al Nahyan National Day Group 3 (PA); Dh 500,000 (T) 1,600m
7pm: Sheikh Sultan bin Zayed Al Nahyan National Day Jewel Crown Group 1 (PA); Dh 5,000,000 (T) 2,200m
7.30pm: Sheikh Mansour bin Zayed Al Nahyan Racing Festival Handicap (PA); Dh 150,000 (T) 1,400m
8pm: Wathba Stallions Cup Handicap (PA) Dh 100,000 (T); 1,400m
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
