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Companies like Twitter, Box, GrubHub and Snap have all used the JOBS Act provision
We're only three days into 2018 and already the tech world has seen its first major IPO filing of the year.
Well, that's not entirely accurate, since hasn't exactly seen it yet. And it may never actually get to.
Music streaming service Spotify has filed a confidential IPO with the Securities and Exchange Commission, according to a report out from Axios on Wednesday. The documents were submitted at the end of December.
The company used a provision in the Jumpstart Our Business Startup (JOBS) Act, passed in 2012, which allows companies to file to go public without letting anyone know about it. Initially only so-called "emerging growth companies" or those with less than $1 billion in revenue, could file under this provision, though the SEC opened it up to all companies, no matter what their revenue, in July.
Confidential filings allow companies to test out the market without pressure, and withdraw their IPOs without scrutiny or embarrassment. On the other hand, it makes it harder to gauge the market since there are an unknown number of other companies testing out the same waters. And the only way to ever know about these filings is if the company does go public, or the information leaks, as it seems to have happened in the case of Spotify.
The other big reason that Spotify's filing is interesting is that the company is said to be doing a direct listing rather than a traditional IPO, meaning that, instead of using banks to help line up investors, the company will instead sell to them directly, thereby cutting out the middle man.
Finally, there is the timing of all of this, as this news comes just one day after Spotify was sued for $1.6 billion by Wixen Music Publishing over copywright infringement. Some of the artists involved include Tom Petty, The Doors, Neil Young and Missy Elliot.
Spotify is said to be looking to debut on the public market in the first quarter of the year.
A spokesperson for Spotify would not comment on the report.
How confidential IPO companies have fared on the public market
It's now been over five years since the JOBS Act was signed into law. Since then, a number of major tech companies have used the provision that allows them to file confidentially, then gone on to become public companies.
Here's how some of these companies fared after filing confidentially and then going public:
- One of the first to use the provision was online real estate firm Trulia, which filed confidentially in July of 2012, only three months after the JOBS Act was signed.
The company went public that September, raising $102 million and going up over 40 percent on its debut day. It stayed on the market for a couple of years before it was acquired by Zillow for $3.5 billion in mid-2014.
- Twitter announced its confidential filing via a tweet in September 2013, and then debuted in November.
The stock had a fantastic first day, opening at $44.10, or 73 percent above its $26 IPO price, raising $1.8 billion. It reached as high as $50.09 during the day, a rise of over 90 percent, before coming back down.
Things haven't been as rosy for the company since then. After a series of quarters in which growth lagged, or stalled completely, Twitter has seen its stock plunge. It is now trading at $24.45 a share, down 6 percent from its IPO price.
- Box had a particularly bumpy road to the public market. First filing confidentially in in early 2014, it then made its financials public before putting those plans on hold just a few months later. reportedly due to market conditions, and to get itself ready to make the plunge.
The company did finally debuted in January 2015, gaining 68 percent over its $14 IPO price and raising $157 million.
It finished trading on Wednesday at $21.68 a share, 55 percent above its IPO price.
- In 2014, GrubHub Seamless used the JOBS Act in 2014, going public two months later in April of that year.
The company had a pretty good first day, with its stock rising 31 percent over its $26 IPO price, raising $200 million. Since then, it has since seen its stock soar. It ended Wednesday at $71.32 a share, up 174 percent over its IPO price.
- One of the more recent companies to do a confidential filing is Snap. Reports initially came out in November of 2016, and it debuted in March of 2017, priced at $17 a share, raising $3.4 billion.
Since then, it has flopped so hard it has been blamed for slowing down the entire tech IPO market last year.
The company was hit hard in its first two earnings reports: in the first, it saw losses of over $2 billion, with soft user growth, sending its stock down 24 percent; in the second it came up short on revenue and earnings, with $181.7 million on a loss of 16 cents EPS, versus the expected $186.2 million on a loss of 14 cents EPS. That sent the stock down 16.7 percent.
It ended trading on Wednesday at $15.31 a share, down 10 percent from its IPO price.
So what can we glean from these use case? Looking at these companies, it's a pretty mixed bag. While Twitter and Snap, especially, haven't had great runs, Box and GrubHub are thriving, with stock prices well above their debuts. Trulia was one of the first companies to use it, and barely lasted two years as a public company.
Of course, it's helpful to remember that these are just the companies we know about; for all we know, a slew of other major tech companies may have filed confidentially and then decided to withdraw without any of us ever knowing.
(Image source: istockphoto.com)
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