Daily Brief: Direct Listings Are Helping You Beat Big Institutions At Their Own Game

Daily Brief: Direct Listings Are Helping You Beat Big Institutions At Their Own Game

almost 3 years ago3 mins

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Roblox isn’t just keeping the kids entertained: the gaming platform listed on the stock market on Wednesday, and excitable investors couldn’t wait to start playing.

What does this mean?

Roblox was supposed to go public last year, but the company hit pause after Airbnb and DoorDash’s stock prices jumped following their initial public offerings (IPOs), suggesting they’d sold their shares too cheaply. Then, in January, the company announced it’d instead let investors themselves set its share price via a “direct listing”. So when Roblox debuted on the stock market on Wednesday, investors initially priced its shares at just under $70 apiece – much higher than the so-called “reference price” of $45, and potentially vindicating the company’s decision.

Roblox numbers
Roblox 2020 numbers

Why should I care?

For markets: Direct listings might not work out for everyone.

In an IPO, it’s banks that set the starting price of a stock. If investors think that price is too low, they’ll pile in and cause an early – and nowadays much-expected – spike in the share price. A direct listing, meanwhile, allows investors to make their own decisions about the price they’re willing to pay up front, which typically means a smaller day-one rise (if any at all). That could work against Coinbase when its direct listing arrives, mind you: drama-hungry cryptocurrency investors might be hoping for more fanfare around one of the leading crypto exchanges.

Game On
Source: The Wall Street Journal

For markets: … but they’re only going to get more popular.

Direct listings give retail investors a way to buy newly listed shares at the same time as institutional heavy-hitters, and there might be a lot more to come. See, companies haven’t historically been allowed to raise money from a direct listing, forcing those that wanted to shore up their bank balances to opt for an IPO. But that rule’s just changed: companies can now list directly and raise money – and if Roblox’s success is anything to go by, plenty more will.

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Adidas And Inditex Reported Earnings Updates

Adidas image

Sportswear giant Adidas and fashion firm Inditex reported annual results on Wednesday, and you won’t believe what happened to their ecommerce businesses…

What does this mean?

It’s no secret that Inditex – owner of Zara and Bershka – has had plenty of shuttered stores to deal with in the last year. So the fact that revenue and profit fell so far short of investors’ expectations – the latter by over 20% – suggested something else was going on, though it’s not certain what. And since sales haven’t improved much this year either, annual profit looks like it’ll fall short again.

Inditex 2020 results
Inditex 2020 results

Still, it could’ve been worse: Inditex’s ecommerce segment looked strong, growing almost 80% compared to the year before and now representing a third of total sales. That was true of Adidas too, which saw its online sales climb 53% – bringing them to a fifth of the sports brand’s total sales.

Why should I care?

Zooming in: Direct to consumer means direct to profit.

A strong ecommerce setup has enabled Adidas to sell directly to consumers, rather than via third-party retailers that take a cut of the profits. It comes with extra costs along the way, sure, but investors won’t mind if that’s offset by additional sales and increased profitability. Just look at Nike: ecommerce already accounts for a third of its sales, and its stock is up more than 50% over the last year compared to Adidas’s 33%. Swoosh.

Adidas stock
Adidas stock

For you personally: There’s no dressing up weak sales.

Lockdown-bound shoppers are opting for sweats over fashion these days, and that could leave slow-moving retailers – some of which take nine months to get new clothing into stores – in a bind. So when you’re trying to spot at-risk retailers, look at whether their inventory is rising faster than sales: it might suggest the retailer’s been too slow to adapt to customer demands and will need to start offering big discounts to clear unsold stock.

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