Daily Brief: US Companies Have Cut Out The IPO Middleman And Leveled The Playing Field For You

Daily Brief: US Companies Have Cut Out The IPO Middleman And Leveled The Playing Field For You

about 3 years ago3 mins

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US regulators approved a ruling earlier this week which will allow companies to raise money by listing directly on the New York Stock Exchange.

What does this mean?

Unlike an initial public offering (IPO), a direct listing steers clear of investment banks and the hefty fees they bring with them, and instead lets investors decide for themselves how much a company’s shares are worth. Up until now, though, direct listings were something of a rarity: American regulators only let companies use them to sell founders’, employees’, or early investors’ existing shares – never new ones. This ruling, then, gives companies another way to raise money, and investors even more fast-growing, high-potential companies to pick from.

Why should I care?

For markets: Out with the IP-Old.

The traditional IPO has come under fire lately, especially after a series of high-profile first-day share price pops – like those of Airbnb and DoorDash – proved investors were willing to pay a lot more than the companies’ advisers thought. That means those firms could’ve sold their shares for more to start with – and if they’d let investors set the price via a direct listing, maybe they would’ve done.

Where shares priced versus where they closed on their first day of trading
Source: The Wall Street Journal

For you personally: Leveling the playing field.

Direct listings should also allow you to buy shares at the same time as your institutional counterparts. See, the traditional IPO process involves offering shares to an exclusive group of heavy-hitters before the company hits the stock market, but a direct listing skips that step. Of course, there are also drawbacks to the direct way of doing things: no investment bank means there’s no one to vet the company’s financials in detail, and no one to keep the company’s share price from getting too volatile in the early days of trading.

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The US Government Sued Walmart For Its Role In America's Opioid Crisis

Walmart image

The US government popped down to Walmart for a few essentials on Tuesday – like, say, suing the world’s biggest retailer for helping fuel America’s opioid crisis.

What does this mean?

As if a pandemic wasn’t enough to deal with, the US has had to keep a drug epidemic in check too. And now, as part of that ongoing struggle, the US government’s accused Walmart’s 5,000 in-store pharmacies of filling invalid prescriptions and failing to report suspicious orders. The retailer has been pushing against this narrative for a while: it filed its own lawsuit against the US back in October, arguing it was being used as a scapegoat for government failures.

That may be, but Walmart faces penalties of up to $68,000 for every unlawful prescription and $16,000 for every suspicious unreported order if it’s found liable. And while the total potential cost isn’t clear yet, that’s almost beside the point: investors think it’s going to be serious, which might be why the company’s stock dropped after the news broke.

Walmart stock
Source: Google Finance

Why should I care?

The bigger picture: Opioid economics 101.

Over 100 Americans die from opioids every day, and the costs for the healthcare and criminal justice systems add up to almost $80 billion a year. Some economists have also pinned low labor participation on the crisis: only 62% of Americans count themselves as among the workforce, compared to the UK and eurozone’s roughly 80%. It wouldn’t just save money if the crisis were solved, then: it might boost economic growth by getting people working again.

The opioid epidemic by the numbers

For markets: The good, the bad, and the both.

Investors targeting a socially responsible strategy need to be careful around drug companies in sheep’s clothing. Indivior, for example, specializes in opioid addiction treatments but was sued for making misleading claims. Johnson & Johnson, meanwhile, features in plenty of socially responsible investing screens, while being responsible for many of the problematic opioids in the first place.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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