TheStreet talks to representatives from the exchanges to explore what they are doing to entice companies, especially ahead of a number of big potential tech listings.
The four-year-old parent company of Snapchat - Snap Inc. has held meetings with potential investors in the weeks leading up to its much-anticipated initial public offering, the Wall Street Journal reported Monday. The meetings came after the company confidentially filed paperwork on Nov. 15, with Morgan Stanley (MS) and Goldman Sachs Group (GS) as the lead underwriters, for an IPO that could value the company at as much as $25 billion.
Snap was eligible to file its paperwork for IPO confidentially due to the 2012 Jumpstart Our Business Startups Act, which allows companies with annual revenue below $1 billion to have the option to file an initial draft of their IPO prospectus with regulators at the Security and Exchange Commission and make necessary adjustments before unveiling it publicly.
Snap's likely $25 billion IPO, the biggest since Chinese e-commerce giant Alibaba Group (BABA) made its IPO debut at a $168 billion valuation in 2014, is expected to revitalize what has been a dismal year for tech IPOs. Statistics from data provider Dealogic shows that only 103 companies have listed their shares in the U.S. in 2016, raising a total of $21.8 billion.
As talks of Snap's highly coveted IPO have finally come into fruition, the social media company's decision on where it will lis is also something to watch as the rivalry between America's largest exchanges presses on. (no details on the exchange were given in the Journal's report and Snap did not immediately respond to requests for comment)
Editors' Pick: This article was originally published on Nov. 16 and has been updated to reflect recent news about Snap's IPO plans.
Although Nasdaq has remained favorable with tech companies, the rivalry between Nasdaq and the NYSE has only become fiercer over the years as more than 60% of tech companies have chosen to list on the NYSE over the last four years compared to when in 2006 it only had 12% of all tech IPOs . Companies like Twilio (TWLO) , Square (SQ) , Line (LN) and GoDaddy (GDDY) have run counter to preconceived notions to join Twitter (TWTR) , Yelp (YELP) , Box (BOX) , and Oracle (ORCL) on NYSE. The race between the two exchanges continues to heat up.
Snap, the parent of popular instant photo-messaging app, Snapchat, which boasts more than 150 million active daily users is expected by many to choose the Nasdaq as its listing site just as former tech darling Facebook (FB) had done. But as many experts say, the choice is less of a foregone conclusion as the New York Stock Exchange has implemented a number of changes over the past few years and presents a number of benefits over the Nasdaq. Still, Nasdaq is no slouch and the competition will certainly take place to land one of the most high profile listings in recent history.
So, how do companies choose which exchange to list on and what benefits do each provide? How did the Nasdaq become the defacto destination for tech companies and how is the NYSE competing with its uptown brethren? There are a number of reasons.
Although Nasdaq has had a higher number of tech IPOs, the ones that succeeded in raising the vast majority of capital to help companies grow, expand their businesses, pay down debt or provide meaningful liquidity events for investors have almost exclusively listed on the NYSE, according to John Tuttle, Global Head of Listings at the New York Stock Exchange. Year-to-date, companies that have listed on the NYSE have raised $11.3 billion from 33 IPOs while Nasdaq won 81 of the 111 IPOs this year (73% win rate) raising $9.4 billion.
"The majority of companies on Nasdaq are actually quite small. If you look at the median market cap, if you look at all of the companies listed on the stock exchange, and all of the companies listed on Nasdaq, the median cap for companies listed on the NYSE is roughly $2.4 billion, for Nasdaq it's under $300 million," said Tuttle.
Back in the 80s and 90s, the NYSE focused on older and more established blue chips companies, its stringent and restrictive rules disqualified many of the then up-and-coming tech companies.
"In 1983 the tech companies were just starting to grow. They weren't big enough to pass the listing requirements on the American and New York [stock exchanges]. By the time they were big enough to switch, the rule had changed and Nasdaq effectively convinced them that. They now offered the same trade info as the other exchanges so switching wouldn't get them much," said Daniel Weaver, professor of finance at Rutgers Business School.
"I have taken three technology companies public, all of them on Nasdaq. Over the past decade, Nasdaq has consistently demonstrated their alignment with Coupa's core values of ensuring customer success, striving for excellence, and focusing on results. Thus, the partnership is a natural fit," said Todd Ford, CFO at Coupa Software (COUP) , which went public in October raising about $133 million.
"We've been in the Silicon Valley for 25 years. If you look at the companies that are listed in the Western region that I oversee, the market cap of all those combined companies is $4 trillion," said Jeff Thomas, Vice President and Head of Western Region Listings at Nasdaq.
Nasdaq has continued to attract technology-focused companies since its inception in 1971 as the world's first electronic stock exchange. According to recent statistics from the Nasdaq, 82 percent of technology IPOs have listed with Nasdaq so far this year, with 91 percent of them being venture-backed new listings.
"Many tech companies like the aura associated with the many successful tech companies that listed on Nasdaq and never left, such as Apple (AAPL) , Alphabet (GOOGL) , Facebook, Microsoft (MSFT) , and Amazon (AMZN) , the top 5 market cap stocks," said Jay Ritter, finance professor at the University of Florida.
Although it is hard to pick a clear-cut exchange winner in the tech IPO space of 2016, as a strong pipeline of big tech names like Uber, Airbnb, Pinterest, Spotify and Dropbox are expected to come to the public market, the race between Nasdaq and NYSE to win over and seat those companies is not going to slow down anytime soon.
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Source :https://www.thestreet.com/story/13861757/1/corralling-the-unicorns-nasdaq-and-nyse-work-to-court-the-next-blockbuster-ipo.html
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