Weekly Financial Recap May 13

Some highlights of this past week’s news in business

spotify-ipo-illustration-650-430

U.S. Markets 

  • The Dow Jones fell nearly 100 points this week to 20,897 ↓ -99.07 (0.47%). Unenthusiastic economic data dragged upon banks and further concerns regarding the promise of department stores came into fruition with lower-than-expected earnings’ reports. Additionally, risk-adverse investors were turned away by the sudden firing of the FBI Chief, James Comey, by U.S. President Donald Trump. 
    • J.C. Penny (JCP: $4.55) 0.95 (17.27%) reported lower-than-expected comparable-store-sales, sending their share price down 13.99 percent on Friday, May 12. 
    • Nordstrom (JWN: $41.20) 8.15 (16.52%) dropped 10.84 percent on Friday after reporting weak quarterly same-store-sales. 
    • Macy’s (M: $23.61) fell 3.04 percent after a poor earnings’ report, adding to its total loss of more than 19 percent in the last two sessions. 
  • Snap Inc. (SNAP: $19.14) ↓ 4.06 (17.52%) shares plummeted more than 20 percent earlier this week as a result of its dismal first ever earnings’ report. While the social media messaging company added 8 million users and increased revenue by 286% year-over-year (YOY), both these values fell below analysts’ expectations. 
    • Competition has also become aggressive between Snap Inc. and Facebook. Facebook recently launched its own version of the disappearing messaging service on its platforms, Instagram and WhatsApp, which it calls Instagram Stories and WhatsApp Status. While Snap reported 166 Million Daily Active Users (DAU), both Stories and Status reported 200 and 175 Million DAU respectively. It looks like Facebook is beating Snap at their own game. 

IPOs

  • The music streaming service Spotify, which was most recently valued at $13 Billion, intends on carrying out a direct listing on the New York Stock Exchange (NYSE) when it goes public this year or early next. This cuts the many fees that investment banks charge when underwriting an initial public offering (IPO). Traditionally, investment bankers would underwrite the new shares of a private company at a price they determine based on investor feedback. However, in a direct listing, a company does not raise capital by offering new shares for sale. Instead, it makes existing shares immediately available to the public. If successful, direct listings could provide a safer approach to becoming a publicly traded company. 
    • Pros: A direct listing allows investors, employees, and owners of the company to all cash out on their shares without a creative shareholder-compensation-plan. Companies also don’t have to worry about their shares being priced too low or too high by investment banks. 
    • Cons: While a company’s share price is not exposed to being set too high or too low, investment banks are crucial throughout the IPO process because they set a price that allows the demand for shares to rise in the market. Without this guidance, a company’s share price is left more vulnerable and faces increased volatility. Additionally, a direct listing does not eliminate Wall Street costs. Spotify is currently working with Morgan Stanley, Goldman Sachs, and Allen and Co. to advise the Company throughout the process.

Ali Punjani
Independent Business Blogger

Share Prices are listed with their respective Friday close values. Economic data is provided on a weekly change basis unless otherwise stated. 

 

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