Why 2019 Could Be the Year of the Direct Listing IPO

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This could be one of the biggest years yet for initial public offerings (IPOs), even though the government shutdown is delaying a few.

Uber, Lyft, Airbnb, Pinterest, and Palantir lead investors’ list of most hotly anticipated public offerings. These “unicorns,” Wall Street’s term for young companies with valuations over $1 billion, are generating quite a buzz.

But there are so many more companies ready to sell shares in order to raise money for their operations. Last year, 190 companies went public for a total valuation of $50 billion.

With 2019’s unicorns, this year should crush last year’s total valuations. Wall Street expects Uber alone to raise over $20 billion, and the total for the year could reach $100 billion.

It’s no wonder that investors are excited by the 2019 IPOs, especially in some of these “big name” companies. Where else can the average Joe get in on the ground floor of a company that they think is about to change the world?

On a more financial level, who is not tired of reading about how much money you “would have” made if you bought Google or Microsoft when they first became public? With new IPOs this year, several could achieve the same level of success, and today’s investors can tell tomorrow’s investors that they did, indeed, buy at the right time.

However, not every company is looking to follow the traditional IPO path to becoming a public company. Some of them, including Airbnb and Slack, are considering an unconventional IPO route called a “direct listing.” This is what Spotify Technology S.A. (NYSE: SPOT) did last year.

It certainly fits with the trend in the general economy of removing the middleman between seller and buyer.

Since this could be the biggest year for IPOs yet, we wanted to make sure our readers know exactly what’s going on when some of these unicorns opt for direct listings.

And as always, we want to make sure they know the most exciting profit opportunities this slate of IPOs…

What Exactly Is a Direct Listing?

With a traditional IPO, a company sells shares using an underwriter, who helps the company navigate regulations and set the proper price.

The underwriters – usually large Wall Street banks – drum up interest for the company’s shares with other institutional investors. They also agree to buy up the shares if the IPO doesn’t find enough sellers. This is both an insurance policy and a promotional campaign for the company going public.

[Critical] As Many as 10 Private Cannabis Companies Are Expected to Go Public by Jan. 31 – Read More

But it doesn’t come cheap.

In return for these services, the underwriter charges a hefty commission, raising the net cost to the company. The commission is usually a percentage of the sales of the initial shares too, so underwriters have a stake in pumping up the share price.

Not every company can afford these fees, and others have enough in-house expertise to go public without help.

Plus, average investors can have a tough time getting ahold of shares of an IPO. The underwriters can promise accredited investors and institutional investors shares of the company at the “IPO price.” But regular retail investors don’t get a chance to buy any shares until they start trading on the open market, typically at substantial markup.

And if your broker calls and says he can get you shares of the latest IPO, you might want to think twice. It’s usually a sign there’s little demand for the company.

A direct listing, on the other hand, is a less-expensive and more transparent alternative. In short, the new shares of a company’s stock are sold directly on a stock exchange. It’s first-come, first-served style.

It is also decentralized, which is actually a perfect metaphor for ride sharing, home sharing, and other service sharing companies. Employees, investors, other insiders, and those people with vested interest in the company sell their shares directly to the public.

There is a trade-off, however, as there are risks for the company and for early stock investors. There is no underwriter who operates in the stock market to support or even guarantee the sale. There is no marketing campaign and no large buyers are available to stabilize trading and keep a lid on volatility. These issues will eventually go away as the newly minted stock matures.

Both methods have their advantages and disadvantages, so pay close attention to how the company is pursuing its public offering since it could affect your risk and value.

But if you believe in the company’s growth potential and the price is right, then an IPO could be a way to get in early on a groundbreaking company.

And we have four little-known companies going public in 2019 with that sort of life-changing potential…

[Critical] These 4 Companies Could Unleash Up to $12 Billion in New Wealth by Jan. 31

Within the next five weeks, we could see as many as 10 private cannabis companies go public.

According to our research, four of them could set new opening-day records.

In fact, each of these companies is capable of generating between $500 million and $3 billion for investors the day they go public.

That’s a potential $12 billion in new wealth created before Jan. 31.

To find out all of the details on each of these four IPOs – and how you can get in on them – even if you’ve never invested a dollar in your life, simply click here.

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